A 2015 Forecast Without Predictions

Charitable Planning Blog - JLFranklin Wealth Planning

Winter 2015

If in January of last year you invested your portfolio based on predictions from the “experts,” you’d probably be sorry today. The Wall Street Journal conducted a survey of 48 business economists in January 2014. Here are some of their predictions, along with what actually happened.

  • In January 2014, oil was trading at $92 a barrel, and many expected it to rise to $95 by the end of the year. However, by December 31, 2014, the price of oil was down to $54 a barrel.
  • Consensus among economists in the survey was that interest rates would go up. Since holding short-term bonds is the best strategy in a rising-rate environment, professional and individual investors avoided long-term government bonds. But the 10-year yield ended the year at 2.2%, down from 2.9% last January. As a result, long-term U.S. Treasury bonds earned a whopping 26.8% last year, through December 29, 2014.
  • Many believed the stock market couldn’t return another positive year. Additionally, from September to mid-October, stocks were down almost 10% during a time when (irrational) Ebola fears permeated the country’s mood. Yet, step back from the daily market noise to see the reality: the Dow Jones Industrial Average had another great year, rising 7.5% in 2014. That’s six years of positive returns in a row.
  • Active managers, whose job it is to pick individual stocks in their mutual fund portfolios, had their worst performance relative to markets in decades. It’s never easy to foresee market movements.

Despite the poor showing of these soothsayers, economists and market strategists will continue to try to forecast where the stock market is going. But when it comes to investing, it’s usually best not to follow the crowd. Emotions and groupthink are an investor’s worst enemies. In the words of Warren Buffett, “Be fearful when others are greedy. Be greedy when others are fearful.”

Long-term investing takes willpower, patience, and the ability to ignore shouts from the talking heads on cable. Unless you are a day trader, your investments are for future needs, such as lifestyle maintenance in retirement. So skip the financial predictions and choose a consistent, disciplined portfolio management strategy.