Why should I care about the falling markets?
No matter your age, if you're working, you'll have a superannuation fund which has a significant exposure to the sharemarket, locally and internationally.
Lower sharemarket returns, means less to retire with. You're no where near retiring right? But what about your parents? Expecting any hand-me-downs?
Oh, and the Australian dollar is also being taken for a ride as a result of weakening markets. That's going to make your already expensive overseas holidays, more expensive.
Ok, so what are the markets exactly?
Sharemarkets are platforms which allow buyers and sellers to trade public companies.
Their value is measured by indicies or an index.
Some of the world's major indicies include:
USA: Dow Jones Industrial Average
UK: FTSE-100
Japan: Nikkei 225
Hong Kong: Hang Seng
Australia: S&P/ASX200
Related reading
ASX tracks US stocks slightly higher
Why are the markets falling?
Global markets have tumbled on the back of renewed concerns about China's economy, the world's second biggest economy, and the direction of American interest rates.
Australia's S&P/ASX200, which tracks our biggest 200 listed companies, had its worst start to a new year ever last week, down 5.5 per cent.
What's China got to do with it?
Investors are worried about China's economic slowdown, which may mean less demand from the Chinese for imports like iron ore, which as a result may slow other economies, like Australia, because we export a lot of that stuff.
The thing is, everyone expected China's growth rate would ease eventually, so it's no real surprise.
Even at 6 per cent annually, its economy is expanding at a phenomenal rate when you compare it with the rest of the world.
Australia grew 2.5 per cent in 2015.
The recent slide in global markets was sparked by economic data released at the beginning of this year which suggested China's manufacturing sector was continuing to shrink.
As a result, Chinese investors dramatically sold off shares, and that negative sentiment spread around the world.
In saying that, China's sharemarket was likely in need of a correction anyway, because it surged for the best part of 2015, even with a pretty big blip in mid-2015.
How does American interest rates play into this?
For all of 2015, investors were waiting for the US Federal Reserve (equivalent to Australia's Reserve Bank) to start lifting official interest rates.
The Fed was looking for clear signs of a strengthening US economy before doing so.
It lifted in December, the first time in nearly a decade.
That's a good thing, because it suggests the US is growing, which in turn helps global growth adding to confidence.
But now, given the global wobbles, some are asking whether it did the right thing, or lifted too soon.
A change in policy could further spook markets, especially if shares continue to slide dramatically.
It's worth noting however, analysts at Macquarie today said it expects Chinese concerns will eventually ease, and that the Australian market will rise 20 per cent by the end of the year.
On the plus side, evidence at the weekend supported a US recovery, with more jobs being added to its economy.
The dollar, what about the dollar?
Remember the days when one Australian dollar bought US$1.10? We won't be seeing that again.
The reason why our dollar was so strong back in the early 2010's was because demand for our commodities were at their peak, boosting the need for Aussie dollars to buy them.
Also, our official interest rates remained high in comparison with the rest of the world, so investors bought Aussie dollars because of its attractive interest rate.
The end of the commodities boom pushed our dollar lower.
A recovering US economy has sent investors back to the US currency, further devaluing ours.
The Chinese wobbles, has investors looking for what's deemed 'safe' havens, which the US dollar is also referred to.
Futhermore, unlike most global currencies which float freely, Chinese authorities meet around lunchtime every day to decide a level at which it should trade. It is, 'pegged' against the US dollar.
Over the past fortnight, it has been decreasing the value of the yuan to try to support the Chinese economy and to help ride out the market shakes.
That in turn has lifted the US dollar, and pushed the Australian dollar weaker as a result.
The good news is, over the last couple of days, China has done the opposite and strengthened it, ever so slightly.
So, should I be worried or not?
As Alex Pollak from Loftus Peak Investments told me last week, he's not worried about a 5 per cent fall in shares, because they rise and fall. Plus, shares are typically viewed as a long term investment.
Still, the Australian sharemarket, has declined every day so far this new year, so it's worth just keeping an eye on China, and more importantly, how that impacts global sentiment.
Or, just make sure you have a good financial adviser to help you make decisions if you're thinking of investing.
Don't know how to find one?
Here's something I prepared earlier.
