What will 2017 hold for the markets? About this time every January, news outlets, economists, fund managers and other pundits flood the media with their predictions about what the market will do in the year ahead. Bold predictions abound regarding anticipated interest rate movements, the direction of the S&P 500 index and the global economy, thus fueling optimism or fear—sometimes both–for the average investor.
The NY Times published an interesting article in December 2016 regarding Wall Street’s past predictions and market predictions for 2017. It looked at predictions from different firms dating back years, do you know what they found? The forecasts are often wrong, historically wrong. There is a tendency for Wall Street firms to be bullish with their predictions, often creating a false sense of optimism among investors regardless of actual returns. On top of that, many firms will update their forecasts as the year (and market) progress. This constant updating makes it difficult for the public to recall the firm’s original forecast. In a nutshell, these yearly forecasts are completely useless.
Predicting the market’s direction has confounded experts for centuries, but in our digital age, with a 24/7 news cycle, we need more and more content to fill the news hole so “experts” are never going to stop making forecasts. However, for the average investor, basing your investment and retirement decisions on such opinions and forecasts is a recipe for disappointment.
If you insist on basing your investment strategy on predictions, an article by Jim Parker of Dimensional Fund Advisors is a great starting point. A few examples of Jim’s predictions:
1. Markets will go up some of the time and down some of the time.
2. Parts of your portfolio will do better than other parts. We don’t know which.
3. There will be unexpected news. Some of it will move prices.
Obviously these are tongue-and-cheek predictions, but that’s the point. No one knows exactly what the markets will do in 2017 – the only certainty in 2017 is that things will be different than they were in 2016.
As we have posted in the past, the best investment strategy continues to revolve around a disciplined, cost-sensitive, broadly diversified portfolio. This strategy allows you to create a portfolio that you can live with, year in and year out, as your needs, life-stage and risk tolerance changes.