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Investment Predictions- Should You Trust the Gurus?

Investment Predictions- Should You Trust the Gurus?

Clear Direction for Your Retirement: Investment Predictions- Should You Trust the Gurus?

Owning a firm that does comprehensive retirement planning and wealth management for our clients brings with it expected challenges especially during turbulent times. 

One such challenge is addressing unrealistic expectations that many investors have. One such expectation regards towing the broader financial services community line they’re used to in predicting what will happen in the markets and broader economy. 

Predictions can take on many forms but we like to use the acronym POOF. This stands for pre-dictions, opinions, outlooks and forecasts. You can find people daily and in all financial news mediums telling you with great confidence what the Market and Economy is going to do. 

It was John Kenneth Galbraith, Economist and Presidential Advisor that said “The only function of economic forecasting is to make astrology look respectable.” 

Let me simplify and make this as clear to our readers as possible, no one and I mean no one, can tell you with certainty (predict) which asset class or sector will be the top performer for 2022, where the S&P will close or even ultimately where inflation and treasuries are definitively headed. At best, it’s the flip of a coin based on belief (even when backed up by facts in many cases) that may turn out to be accu-rate or may not. As the old saying goes, “even a blind hog finds an acorn from time to time.” You can thank my southern, hillbilly upbringing for that colloquialism. 

However, at the end of the day, no one really knows and as I will point out in a few examples, market predictions are garbage. In our opinion, it’s better to go with “what is”. That is to say, focusing on fact-based measurements that produce mathematical probabilities of success or failure in which to base decisions across varying time-frames. This is in stark contrast to emphasizing “what might” or “what should” happen tomorrow by making theoretical invest-ment decisions and essentially flipping a coin. 

Let me start by stating that human beings are fallible, so me pointing out a few examples is in no way an attack on the individual making the prediction but to point out the mistaken broader concept of making investment decisions based upon market predictions rather market facts.

Prediction one was by hedge fund manager Whitney Tilson in 2004. He predicted that an IPO that year, Google, would be “disappointing” to investors. How’d that turn out for him?

Prediction two was Charles Kadlec in 1999 who predicted that the Dow would hit 100,000 by 2020. Oops! 

Prediction three was by a Nobel Prize winner in Economics, Paul Krugman. In 1998 he called for a dramatic slowing of internet growth (and thus tech related stocks) by 2005 stating “…the internet’s impact on the economy has been no greater than the fax machine.” Umm, ok. Queue the annoying fax machine sound here.

Broadly speaking, predictions tend to be vague and very general in nature. This allows for wiggle room if they get it wrong. Here’s an idea, how about just telling folks the truth…I DON’T KNOW! We choose to tell our clients what we do know that’s actionable today and the limitations of such. That is, we can see what’s happening today mathematically and act on it, no one can see what will happen in the future. 

Philosopher Soren Kierkegaard (1813-1855) said “There are two ways to be fooled. One is to believe what isn’t true; the other is to refuse to believe what is true.” That’s a difficult prop-osition to consider when trying to discern how to manage your investment risk to and through retirement. So here’s some helpful principles we walk clients through with our methodology.

  1. No one knows the future of the stock market. 
  2. There are identifiable trends in the markets every day.
  3. There are always over-performers and under-performers to select from or stay away from – if you’re willing to investigate such.
  4. It’s ok to exit markets in a predefined and principled way when necessary.

Bottom line, choose investing principles over investment prediction and stick with your strat-egy if you trust it. If not, come see us and we’d be happy to walk you through our methodology for managing investment risk.   

I hope this is helpful to your retirement journey. Call us, come see us or visit us at www.woottonfinancial.com, we’d love the opportunity to help address your questions and concerns and provide you Clear Direction for Your Retirement®.

Investment Advisory services offered through Game Plan Advisors, Inc., a registered investment advisor. Insurance services offered through Wootton Financial Group, Inc. Game Plan Advisors, Inc. and Wootton Financial Group, Inc. are affiliated through common ownership. Neither Game Plan Advisors, Inc nor Wootton Financial Group, Inc. offer legal or tax advice. Please consult the appro-priate professional regarding your individual circumstance. Not associated with or endorsed by the Social Security Administration or any other government agency.
Please consider the investment objectives, risks, charges, and expenses carefully before investing in Variable Annuities. The prospectus, which contains this and other information about the variable annuity contract and the underlying investment options, can be obtained from the insurance company or your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.
The investment return and principal value of the variable annuity investment options are not guaranteed. Variable annuity sub-accounts fluctuate with changes in market conditions. The principal may be worth more or less than the original amount invested when the annuity is surrendered.
Fixed Annuities are long term insurance contacts and there is a surrender charge imposed generally during the first
5 to 7 years that you own the annuity contract. Withdrawals prior to age 59-1/2 may result in a 10% IRS tax penalty, in addition to any ordinary income tax. Any guarantees of the annuity are backed by the financial strength of the underlying insurance company.
Indexed annuities are insurance contracts that, depending on the contract, may offer a guaranteed annual interest rate and some participation growth, if any, of a stock market index. Such contracts have substantial variation in terms, costs of guarantees and features and may cap participation or returns in significant ways. Any guarantees offered are backed by the financial strength of the insurance company. Surrender charges apply if not held to the end of the term. With-drawals are taxed as ordinary income and, if taken prior to 59 ½, a 10% federal tax penalty.  Investors are cautioned to carefully review an indexed annuity for its features, costs, risks, and how the variables are calculated.

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