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Last Updated: Friday, 27 July 2007, 11:21 GMT 12:21 UK
Q&A: Stock market falls and you
Share price falls can impact personal finances
Falls in the stock market can impact on your personal finances and the wider UK economy.

What does a stock market fall mean for economic growth?

Short term falls in shares prices have relatively little impact on the wider economy - jobs, growth and mortgages.

However, a sustained fall in share prices can make it harder for firms to raise cash from stock markets.

This in turn can damage investment, job prospects and economic growth.

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Sometimes stock market falls can lead to a recession.

And if individuals feel that they are less wealthy, they might start spending less, causing an economic slowdown.

Stock market falls are often associated with higher interest rates and fears of lower profits, which could also affect householders through higher mortgage payments.

What does it mean to shareholders?

Falling stock markets are obviously not good news for shareholders.

It means the value of their investments has fallen and they are in effect a little poorer.

However, most investors take a long term view of their share investments.

They are hoping that their share investments will grow over the long term.

In other words, a few days, weeks or months falls in share prices should not be too concerning because they are in it for the long haul.

But investors who take high risks by investing in hedge funds or spread betting on stock market movements can really lose their shirt.

Alternatively, though, if these risk-takers bet correctly that share prices will fall they can make a killing.

What about pension savers?

UK pension funds invest heavily in shares.

During the London stock market crash between 2000 to 2003, when shares lost half their value, the financial health of UK pension funds was seriously damaged.

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As a result, hundreds of workplace pension funds cut benefits to new and existing members.

In the most extreme cases, firms wound-up employee pension schemes, leaving members with only a fraction of the pension they were promised.

In recent years, the financial health of pension schemes has improved slightly.

But another round of stock market falls could undo all this and lead to more scheme closures.

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