December is the perfect time for reflecting upon the year gone by, but also for anticipating what the next year might bring. In the finance world, this time of year comes with bold forecasts and predictions. Investors are tempted to act on the predictions of so-called “experts” as we grasp for some sense of how to prepare for what’s next in an uncertain world. The media promotes bold predictions because, frankly, we just can’t get enough of them.
Oftentimes, people don’t seem to stop and ask about the track record of the leaders in business and finance who provide the quotes for articles, share their predictions on the news, or respond to surveys. You do not have to look very hard to see that the “experts” are rarely right.
Half of the CEOs surveyed by the New York Times in 2018 expected a recession in 2019. They were wrong.
The most praised and interviewed hedge fund CEO, Ray Dalio, must have made a few wrong predictions. His fund is down for the year, while the stock market has increased by over 20%.
Most pundits and market strategists predicted that interest rates would rise in 2019. JP Morgan CEO, Jami Dimon, expected rates above 4% in 2019. Rates dropped significantly and are set to end the year below 2%. Other pundits constantly add politics to the mix, which makes for a catchy headline for the right reader, but does not help with their predictions.
Rather than looking for the right expert to follow, we recommend focusing on the factors you can control. Give to charity and save for the future before you spend on today’s needs. Live below your means. Minimize taxes. Maintain a liquid emergency fund. Transfer risks through insurance when appropriate. Start each year with a clear understanding of the risk of your investments. And don’t forget to celebrate when you reach your goals.
Good financial planning does not depend on knowing what’s to come. There is a wonderful freedom that accompanies acknowledging that the future is uncertain and always will be. I hope you all experience that freedom in the new year.