‘Tis the season of predictions for the new year. From where the S&P will end up to who will win an Oscar, everyone has something to say. Predicting the future and pontificating about it is easy. Getting is right? Not so much. So, who do you listen to? The answer: You.
Even a broken clock is right twice a day
Look at predictions this way: It’s everyone’s chance to put their hat in the ring in the game of “I told you so.” That’s all. Somebody is going to get bragging rights at the end. I often tell my clients that my crystal ball is as good as theirs. I might be more educated or more experienced or more articulate about it, but it’s really just as good as anyone else’s. Remember, past performance is not a predictor of future results. Just because someone’s gotten it right in the past doesn’t mean that person gets it right this time around.
There are many folks out there saying the S&P is going to be up substantially within the next two years. Time to throw all your money into the stock market, right? Not so fast. The last “secular bear markets”—that is, those extended periods of time since 1906 in which the market has ultimately been down from the beginning of that period to the end—have averaged about 15 years. We’re about 10 years into this secular bear market. Understand that even within secular bear markets, there are years that are “up” and there are opportunities to make money. So, yeah, the markets might be up the next two years, but that doesn’t mean we’ve entered an official “secular bull market”—that is, an extended period of time in which the markets are up. And we won’t know that until we’re officially into it, which takes 20/20 hindsight years from now.
What almost all bear markets have in common is volatility. You have to manage volatility. It’s a silent killer on portfolios. Go back to your plan. Make adjustments according to that plan. Do your best not to lose money and don’t be greedy. You don’t need to capture the top of the market to meet financial planning goals at risk of a significant drop. Balance your allocations, reduce your volatility, and even out your returns so that you ultimately meet those financial goals over time.