The Attitude of Economics

Date Added: January 15, 2013 12:58:17 AM
Author: David DuVal
Category: Business & Economy

When it comes to quantifying whether markets will rise or fall, economists are often left scratching their heads when their predictions are incorrect. Will more taxes improve the economy? What about more spending? Politicians and economists make all sorts of suggestions and predictions, but often the outcome is as varied as the weather. So what can an individual investor do?

One of the best indicators is public confidence. Reports like the Consumer Price Index can provide signals about the consumer confidence. When consumers feel they have a brighter future, they spend more money, and that money circulated through the economy. If they believe their homes will increase in value or that jobs will be more plentiful, they are more likely to spend money. Conversely, if they believe there will be a recession or heavy inflation, they will hold back on making purchases.

Consumerism is not always based on logic, but on confidence. And what the investor needs to predict is future confidence. If everyone is very lacking in confidence now, so often there is a strong likelihood this will change. When you can predict increased confidence in the future, you can more assuredly feel safe that you can make an investment in the stock market such as ETFs and see your investment outperform money invested in CDs or savings accounts.

Now when it does come to logic, we have to be able to understand how words and logic are used by economists and politicians. Are they pushing an agenda that would benefit them most if people believe them, or are they actually basing their words on data that will predict future confidence?

As an investor you must learn to look at actual data, not just listen to those who give advice based on an agenda. By all means, it does help to predict which political agendas might be more likely to succeed, but above all train yourself to predict future confidence, and you will be more likely to do well with your investments.

One final tip is to be careful to react too quickly. Investing on terms of months or years works much better than trying to beat the market day to day.

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Written by David DuVal, the owner of a web development firm who also likes to study and write about economics on his free time.

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