Evaluating “Expert” Predictions

Investing based on predictions is like gambling; if you do it enough, the odds are that you will lose money.  Active market participation, based on media reports or financial gurus, has been shown to have results inferior to steady investment based on your individual goals and risk profile.  If you take a moment to think about it, predictions come from people who profit off of your active market participation and fears and hopes for the future.  The financial media benefits by selling you subscriptions, and they know the only way you will pay for their publication is if it grabs your attention.  Good advice, such as “Formulate a plan based on your risk tolerance and risk capacity; scan the universe of investments frequently to locate the best investments to gain exposure to a certain asset class” is not likely to catch your eye.


Each year, many experts (and some not so expert) make predictions about the economy and investments.  It may seem like a certain prediction has to come true, but often times, it never unfolds.  When individuals or companies make calls at the beginning of the year, they do not revisit them at the end of the year if they were wrong.  You will only hear about the “right calls”, while the mistakes fade from notice.

Larry Swedroe tracks predictions each year and evaluates which forecasts came true and which missed the mark.  For 2013, only one out of the eight predictions turned out to have been accurate.  Not an impressive average. We encourage you to take a look at his article here:

Article Spotlight: Read the Article

Stock returns weren’t dismal in 2013.  In fact, the MSCI World Index increased 26.68%.  Inflation didn’t take off.  The price of gold didn’t skyrocket.  It paid to invest in assets for their appreciation: not just their dividend yield.  Active fund managers are still underperforming index funds and enhanced-index1 funds. These were all outcomes about which prominent prognosticators were confidently mistaken. If you had listened to them and acted on these or similar predictions, you likely would have lost out on market appreciation.  Changing your plan year-to-year or even day-to-day based on predictions forecasting macro or micro-economic events is not a sound strategy.

One piece of advice has proven to be solid: given interest rate uncertainty, keep your bond portfolio short-term. We see this as a prudent decision and most of our portfolios are designed to keep the duration below five years.

We hope you enjoy Swedroe’s analysis of the predictions and remember that predictions should serve mainly as entertainment, not as a basis for continuously adjusting your investment structure.

As we enter the second quarter of 2014, it is a worthwhile exercise to ask yourself: “What is my investment strategy? Will I work with someone that knows my individuals goals, fears, and dreams or will I listen to “market gurus” that are giving blanket advice to millions of people?”


1. For more information on enhanced-index funds, click here: http://www.empirical.net/enhanced-index-investing-capitalizing-on-market-returns/.