“I can’t be an investor because I don’t understand the economy”
This is a phrase I have heard more than a few times in my life. I love when people say it because it illustrates very common misconception; that to make money investing, you need to be a full-time economic genius.
So, call up Adam and Jamie because its time for some good old-fashioned Myth- Busting. Today we’ll be looking at three common myths about the relationship between the stock market and the economy.
📰 In the Headlines
Translating some of this week's biggest stories
Translation: California's fire season woes are far from over.
This week, another round of wild fires are raging in Southern California, this time around the Inland Empire, in the hills of Irvine, CA. As officials look into the cause of this blaze, fingers are being pointed to Southern California Edison, SoCal's public utilities provider. PG&E and Edison have been getting the blame for causing massive wildfires in California for the last several years, which may cause the Golden State to rethink how we are getting our electricity.
Translation: Americans are spending more money
After months of economic uncertainty, Americans are feeling more confident in pulling out their credit cards. "Durable goods" means anything that won't spoil, like cars, laptops, or paper towels. If our spending is going up every month, that is a great indicator that we are feeling optimistic about the future.
Translation: Dunkin’ may be bought by a parent company, and go back to being a private company.
Earlier this year they dropped the Donuts, and now they might be dropping from the markets. The classic Northeast coffee joint has been surprisingly resilient through the pandemic, but now they have confirmed that they might be sold to the same parent company that owns Arby's, Buffalo Wild Wings, and Sonic.
🐺 Who's Afraid of the Big Bad Economy?
The world of economics and investing can seem so daunting and complex. There is so much to know, and it feels like any average person could never understand it all. The good news is, you don't have to.
Here are three things you should know if you feel intimidated by the world of finance.
Myth: The stock market and the economy are the same thing
If “The Economy” is a pie, the stock market is just one slice.
When people talk about ‘the market’ they are referring to stock exchanges, or places where people buy and sell stocks. This used to happen in actual places “(like the New York Stock Exchange) but now it mostly happens online.
The “Economy” is a catch-all term for buying, selling, or making things. When the U.S. Economy is “doing well” that just means we are buying, selling, and making a lot of things. When people are out of work, not buying things, or unable to sell things (like, during the pandemic) the economy is “bad”.
Myth: I need to understand the Economy to make money in the stock market
You can know enough to invest your money wisely without understanding every element of the Economy.
Looking at our "Economy Pie" there are slices for everything; agriculture, technology, housing, the list goes on forever. In order to be a wise investor, you don't need to be an expert on all of them.
It can seem complicated because no one event happens without affecting something else. For example, whether or not a COVID vaccine comes out soon will affect how many people buy laptops for their kids to use for school.
Just do your research on the companies you want to invest in, and listen to advice from sources your trust. With all the resources available to us in 2020, you can know what you need without spending all your time doing research.
Myth: I should only buy stocks when the Economy is doing well
The stock market and the Economy do not always see eye to eye.
For example, the US was in a recession from June to September this year, but looking at the stock market during those months, you never would have realized it.
Here are a few longer reads that go into why a bad economy doesn't mean a bad time to invest.
- The stock market is not always an accurate representation of how the economy is doing
- Some companies are more profitable when the economy isn't doing well
- The stock market moves much faster than the economy
Don’t let your fear of “The Economy” keep you from earning money from investing. It may seem daunting and scary, but if you put in the time and find resources you trust, you'll see it's not as complicated as you may think.
Do you have more questions about the economy or finance? Email me at firstname.lastname@example.org with your questions for the next time we go Mythbusting.
Word of the Day
(n.)A large company that owns and operates many different brands. They gain new brands either by buying other companies or developing their own new products.
- Proctor & Gamble is the company behind Crest, Tide, CoverGirl, and more
- Along with soda, PepsiCo makes Quaker Oats, Cheetos, Tropicana, and more
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