Stocks are an important part of your financial planning because their historic average returns of 10 percent combat the effects of inflation both in your pre retirement and retirement years. It is also easy to calculate and find information about financial planning. PE ratio is the value the market has set for every 1 dollar per share a company earns in a year. Thus it is important to make the financial planning according to the condition of the share market.
Let us assume both companies grow their earnings by 1 dollar per share and their PEs stay the same. Company A stock will jump 15 points or 25 percent. However, company B stock will jump 30 points or 50 percent. On the other hand let us assume both companies have their earnings reduced by 1 dollar per share and their PEs stays the same. Company A stock will drop 15 points or 33 percent. Company B stock will drop 30 points or 50 percent. One must go for the financial planning after doing some research in the stock market.
Financial planning also depends on the share market structure. Some industries naturally carry higher PEs than others. Many times industries that are more mature, slow growing, carry a lot of debt, or are not perceived to have a high value add carry relatively lower PE ratios. Industries with stocks that carry higher PEs usually have companies that are high growth stocks. Therefore one must make their financial planning according to the market conditions.
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The stock market has become a very important part of financial planning. In 1982 the New York Stock Exchange traded hundred million shares in one day for the first time. Now the NYSE routinely trades more than 1 billion shares a day and has traded as high as 3 billion shares in one day. The internet is a big source for financial planning. It has made financial planning and information readily accessible. The Price Earnings ratio is a common indicator of whether a particular stock is a good buy.
The stock market has become a very important part of financial planning. In 1982 the New York Stock Exchange traded hundred million shares in one day for the first time. Now the NYSE routinely trades more than 1 billion shares a day and has traded as high as 3 billion shares in one day. The internet is a big source for financial planning. It has made financial planning and information readily accessible. The Price Earnings ratio is a common indicator of whether a particular stock is a good buy.
