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G
L O S S A R Y |
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A "Flight to Quality".
Many factors continue to take their toll on the stock market. There are concerns about Iraq, high oil prices and higher interest rates in the future. At times, when investors are particularly worried about world events, there can be what is called a “flight to quality”.
As you've experienced, the prices of stocks (and stock indexes) sometimes go down. As an investor, you lose money. When you see your investments decreasing in value, it might make you want to invest in something different. A "flight to quality" is when nervous investors sell their stocks and buy “safer” investments, like bonds or money market funds. These investments are considered to be safer, but why?
First, with these investments you are basically making a loan. As a result, you'll receive interest payments. Second, the price of these investments tends not to go up and down as much as stocks and stock indexes. So you're less likely to lose a lot of money.
When there's a widespread “flight to quality”, this can also have a snowball effect. If enough investors decide to sell, stock prices will go down. The prices go down because the supply of stocks is greater than the demand for them. And when other investors see their stock prices going down, they might sell and buy safer investments, too.