Saving vs Stock Market.

ILW

Why is investing in the stock market considered to be better for the economy than putting cash into a savings account?

To me it appears that the vast majority of stock market investment strategies seem to revolve around trading shares that have already been issued so add nothing to the amount of cash available. (For every buyer of a share somebody must have sold).

Whereas cash put into a humble savings account will generally be recycled into the economy in the form of loans to small businesses etc.

Can someone tell me where I am getting this wrong?

somethingcorporate

Buying shares in a company provides capital to the company to invest - which would hopefully boost jobs - or that is (part of) the theory.

ILW

somethingcorporate wrote: »

Buying shares in a company provides capital to the company to invest - which would hopefully boost jobs - or that is (part of) the theory.

Only if they are new issue.
It seems though that the vast majority of stock market activity is just trading existing shares, this provides no new capital.

Kennyboy66

ILW wrote: »

To me it appears that the vast majority of stock market investment strategies seem to revolve around trading shares that have already been issued so add nothing to the amount of cash available. (For every buyer of a share somebody must have sold).

Liquidity, liquidity, liquidity.

Companies enjoy permanent access to capital even when original investors sell up.
The ability to sell easily is a great incentive to investing in the first place.
Liquidity should ensure capital is allocated correctly, and liquidity makes investing inherently less risky than illiquid markets.

Empirical evidence suggested that countries with a liquid stock market grow more quickly.

Access to bank funding is similarly important and access to banking and a liquid stock market complement each other - they are not mutually exclusive.

sabretoothtigger

All the banks were funded via share issues. It can be done, it was forced in that case but previously rights issue had been done to raise funds

Its a form of security, we can say the same of bonds. Those are traded, a working company is mostly funded by its customers most of the time.

Most companies issue shares regularly instead of cash to employees. Its a useful incentive and alternative to removing cashflow from the company

recycled into the economy in the form of loans

They both involve passing cash to a company and risking loss