The Trouble With Forecasting The Market’s Future
The key to smart investing is having trust in markets. Instead of trying to predict the future or make anxious guesses based on the recent past, we should be looking to the market itself to find insightful information on anticipated returns.
Many financial advisors turn to the collective knowledge of buyers and sellers to make suitable decisions within even the most challenging market environments. By looking elsewhere or relying on the media, far too many investors are leaving themselves vulnerable to the emotional whims of short-sighted forecasting.
Forecasting has its place, but where it often goes awry is when people fail to stick to investing fundamentals and ignore the historical stock market. And by the historical stock market, we don’t mean recent activity, but the lessons we’ve learned about how the market has behaved overall.
The market has a job to do, and it’s not to make you feel certain or tip you off to the obvious times to get in or out. Markets work on a mechanism of “no risk, no reward” which means there will always be some anxiety baked into the level at which prices are set.
All too often, especially early in the year, people tend to look back on the prior year’s performance to make predictions about what the market will do in the year to come. But when Wall Street news is filled with troubling recaps of recent market losses, the resulting predictions tend to be filled with doom and gloom.
The trouble with ominous reporting is that it sometimes leads to a crisis of faith. Some investors get nervous and jump ship.
But the problem with trying to time the market is that the market has no memory.
Take what happened in past years for example. The S&P 500 fell more than 6% in 2018, and U.S. indexes closed with the worst yearly losses since the 2008 financial crisis. In early 2019, headlines were warning of a possible end to more than a decade-long bull market. So people got out.
But the forecasters were wrong. We saw fixed income gain more than 8% and global equity markets close out up more than 25%.
Far too many wary investors missed out on that growth, and far too many of them are trying to figure out when to get back in. The reality is, missing out on growth like this has much the same effect on a portfolio as taking a loss, so this hit will take some time to recover.
Whether you’ve done this in the past or you’ve considered timing the market based on panicked headlines, you may want to reconsider your overall approach. A better approach is to restore your belief in markets and work with a trusted professional who also believes in riding out the downs so you can capture the ups over the long-term. This starts with determining what percentage of your portfolio you can comfortably invest in equities so you can confidently stay invested during more uncertain times.
So when planning your investment strategy, keep the lessons of 2019 and previous years in mind. The market’s ups and downs are inevitable. Rather than jumping in or out based on headlines, focus on diversifying your portfolio and investing long-term.
Brendan is the Managing Director for Waymark Wealth Management. He has extensive experience in comprehensive wealth management. His focus includes retirement planning, behavioral finance, investment portfolio construction, education funding, insurance & risk management, taxes, charitable giving, and estate planning. Brendan has an ability to take clients' complex visions and distill them down to simple action plans, helping them move from where they are today to where they want to be tomorrow.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
No strategy assures success or protects against loss.
All performance referenced is historical and is no guarantee of future results.
All indices are unmanaged and cannot be invested into directly.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Stock investing involves risk including loss of principal.
The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure the performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
This material was prepared by Crystal Marketing Solutions, LLC, and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate and is intended merely for educational purposes, not as advice.