Now is the time of the year market pundits make their
predictions with convincing arguments about why XYZ stock will soar or why ABC
asset class will crash. I find these predictions to be useless. The pundits end up either being wrong or
lucky. Nobody can accurately predict the
markets in the short-term on a consistent basis and if they could they’d be so
rich it would be a waste of time to tell anyone how they did it. In light of that, here are predictions for
2015 that will actually be useful and insightful:
1) Stock and bond
markets will fluctuate. Undoubtedly,
there will be a short-term period in 2015 where the market will drop and it
will make you feel sick to your stomach.
There also will be a period where stocks go on a strong push upward and
you feel great. Don’t let either of
these events distract you from your long-term goals. Having to deal with these fluctuations is the
reason investors who stick it out earn higher returns than cash.
2) Those who panic
will have lower returns than those who don’t.
Often, when the stock market drops, investors get nervous and sell
to avoid any further declines. This
strategy sounds reasonable except that usually around the time they sell the market
turns around. Even if the market doesn’t
immediately recover, these same investors fail to get back in when the rebound
happens and miss out on the eventual recovery and beyond. Realize that selling out in a panic just
replaces one stressful decision (should I sell??) with another (should I buy
back in??).
3) Your neighbor,
co-worker, or in-law will tell you something useless about investing. There is a lot of noise out there that can
cause you to lose focus on your goals and strategy. It’s inevitable that someone at some point
will tell you about the genius move they made buying some stock or how they
predicted the last market correction.
Don’t get lost in this, it means nothing to you and your situation. Remember, people enjoy talking about their
successes, but not their failures. For
every genius move made there are probably ten foolish moves.
4) Those who
regularly saved 15% or more of their income will be in good shape for
retirement. The statistics on how
unprepared people are for retirement are alarming. One way to improve your retirement prospects
and build a reasonable nest egg is to start saving 15% of your gross income as
soon as you can and for the rest of your career. The earlier you start, the better off you
will be.
