The Market is not the EconomyI used to listen to the radio show Marketplace Money a lot. (These days I listen to things like itsy bitsy spider until Raelyn’s bedtime). Back then I heard a common phrase from the host Kai Ryssdal. It is simple but bears repeating: “The market is not the economy.”
In my work as an investment advisor, I know why Kai repeats that phrase so much. People constantly look to the economy to try to determine where the stock market is heading…and that doesn’t work! Statistically speaking, there is zero correlation between the growth in the economy and stock market performance. Translation: math nerds confirmed it doesn’t work. Even if you knew what was going to happen in the U.S. economy this year, it would tell you nothing about how stocks are going to perform. Don’t try to change your investments based on it.
This is incredibly hard for really smart people to understand. From now to eternity I will continue to get questions about the U.S. economy and what it means for stocks…and I will continue to tell people that I cannot predict what will happen in the economy. If I could, that would still tell me nothing about how I should position your portfolio. Instead, you should stick with your long-term plan and adjust it when changes happen in your life.
Repeat after me: “The market is not the economy.” Thanks, Kai.