Seeking Certainty in an Uncertain World
Written By: Chris Merchant, CFP® BFA® | June 2022
It’s natural for humans to want to make sense of the chaotic world in which we live. Finding certainty, real or imagined, makes us feel safe and confident. But our desire for certainty can sometimes cause us to buy into illusions. In investing and financial planning, this may manifest itself in the mistaken belief that experts can accurately predict the economy or the stock market.
Times of heightened uncertainty such as we’re experiencing now creates a high demand for expert predictions.
Recently, a few well-known businesspeople have shared their predictions:
- Jamie Dimon, the CEO of JP Morgan Chase, recently said, “Brace yourself for an economic hurricane.”
- Elon Musk said he has a “Super Bad Feeling” about the economy.
If we’re to take these predictions seriously, they can certainly be disturbing. So, I thought it might be helpful to take a closer look at some past predictions.
Bank of America & Citigroup
At the beginning of 2021, Bank of America and Citigroup both said the stock market (S&P 500 Index) would gain only +1.2%. It went up +26.8%.
Barron’s Roundtable 2008
In 2008, Barron’s Roundtable experts forecasted that stocks (DJIA) would have a positive return, with predictions varying from a high of 18% to a low of 3%. It lost – 37%.
In 1959, Alan Greenspan told Fortune Magazine that stocks were overvalued. They went up +43% the next year.
Later in his life, in a 1973 interview, he urged investors to buy stocks without hesitation. “It’s very rare that you can be as unqualifiedly bullish as you can now.” Within 16 months, the Dow had lost -50%.
Alan had a bachelor’s, master’s, and Ph.D. in economics, and he would later hold the position of Chairman of the Federal Reserve for two decades.
At the beginning of 2021, LPL’s research department said the stock market (S&P 500 Index) would gain +3.8%. It went up +26.8%.
For 2022, they predicted a +6.3% gain. Currently, it’s down -14% YTD.
As demonstrated above, even the most well-financed, well-educated, and most experienced experts fail to predict bear and bull markets or good and bad economies. We see this play out time and again that rather than being right, they are consistently wrong. That’s an important lesson for investors to learn because investment decisions should never be based on someone else’s guess of what’s going to happen. If we believe in and act upon those predictions, we risk our financial stability, our wealth, and our futures.
Guidance for the Road Ahead
- Recognize the limitations of human knowledge and become a little more comfortable with uncertainty. As Hall of Fame Baseball player, Yogi Berra said, “Get comfortable being uncomfortable.”
- Although some uncertainty is unavoidable if you’re nearing retirement, you can create a potentially higher level of certainty for yourself and your money by using strategies to mitigate the sequence of return risk (I.e., The time-segmentation strategy we offer in The Sovereign Series™ Retirement Plan. )
- Be skeptical of people who make bold predictions about the stock market or economy and avoid the temptation to make your own. Think like Wall Street legend J.P. Morgan – When people would ask him what the stock market is going to do, he’d say, “It will fluctuate.”
Don’t let the predictions of others destabilize your plan or get you off your path. Mr. Dimon and Mr. Musk may have made big headlines with their predictions, but remember, no one can accurately predict the stock market or economy in the short term—so don’t put too much stock into what they have to say.