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Why is market going up when economy is at it's worst?

Posted on Aug 12, 2020 in Personal Finance

S&P 500 Chart

Economy says what is the situation today, where as market shows what investors think about the future.

If you think Market is overvalued today, Market was always overvalued 7 out every 10 years. Reason why Market goes up in price because Cash is getting worthless due to inflation, Quantitative easing(Central banks printing money), Low interest rates. When there are no better way to make more money out of existing money you have, Money flows into Market. Also this pandemic did not affect everyone equally, while entry level jobs, retail and personal services jobs hit rock bottom, Tech and other while collar jobs came out unscathed. In addition to this, all the money saved from staying inside was pumped into market, Thanks to commission free Robinhood craze.

Any newbie in the market will always try to time the market by waiting for fall before buying and try to sell at the high. You can be right that a market or sector is overvalued but wrong on the timing. When you sell, Market can stay Overvalued for couple of more years and raise 30% more or when you buy after a fall, Market can fall 20-30% further. That’s essentially what economist John Maynard Keynes said,

The market can stay irrational longer than you can stay solvent.

Trying to time the Market, You might get it right once or even twice, but no one has ever come up with a reliable system for timing the market every single time. Investing is for lifetime (Say 25-30 years), It’s impossible to be right all the time and one failure can make you stay off the market for very long time. Instead of trying to gamble at the Casino, Try to accumulate small parts of Casino(Stocks), As you know House always wins.

Understand the difference between stock trading and wealth building. Look at all the crashes in last 30 years, it all looks like minor blips and You will understand why the next market crash in a year or two doesn’t matter in next 20 years. Look at the graph on the image, Everytime market falls off the peak, it raise back and goes beyond previous high.

Your Investments are like pimple, More you touch them, Worse it gets.

Regularly contribute and Stay Invested and remember

Time in the market is always better than timing the market.

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