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Forget Stock Predictions for Next 12 months. Deal with the Next Decade.


As a substitute, embrace uncertainty.

Accept that you want to invest without knowing what’s going to occur to your money over the short term. So ensure, first, to place aside enough money in a secure place, like a checking account or money-market fund, to pay the bills within the months ahead.

But since the stock market tends to rise over long periods, and since bonds at the moment are generating reasonable income (as I explained last week), it’s smart to speculate for a horizon of a decade or more in low-cost index funds that track the complete stock and bond markets.

Don’t base your investments on specific predictions of where the stock market is heading over the short term, because no one knows. Making bets on the premise of those forecasts is gambling, not investing.

Consider how bad Wall Street forecasts have been.

In 2020, I noted that the median Wall Street forecast since 2000 had missed its goal by a median 12.9 percentage points a yr. That error over 20 years was astonishing: greater than double the actual average annual performance of the stock market!

Imagine a weather forecast as bad as that. A meteorologist says the hot temperature the subsequent day will likely be 25 degrees Fahrenheit and it’s going to snow, so that you dress for a winter storm. Actually, the temperature seems to be 60 degrees and the skies are clear. That’s in regards to the level of accuracy for Wall Street strategists through 2020.

They continued their errant ways the subsequent yr, issuing a median forecast of three,800 for the closing level of the S&P 500 in 2021. However the index ended the yr at 4,766.18, an error of about 25 percent. In a word, the forecast was horrible.

The forecasts for 2022 look inaccurate, as usual, though we won’t know needless to say until the tip of this month. A yr ago, the Wall Street consensus was that the S&P 500 would reach 4,825 at the tip of 2022, a modest increase from 2021. But for the time being, the index is hovering around 4,000. In other words, a yr ago, strategists were saying that 2022 could be just high-quality for stocks. It hasn’t been.

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