Predictions Are (Still) Worthless

You’ve probably heard of Robert Kiyosaki, or at the very least, heard of one of his most famous books “Rich Dad, Poor Dad”.  In the book he explains how he learned to build wealth from his “Rich Dad” and how those ideas differed from his “Poor Dad”.  While some of the lessons are useful, where it become dangerous is when people start following his predictions (or anyone’s predictions for that matter) on the stock market.

Here is a recent article reminding us of his prediction from 2002 (14 years ahead of time!) about the pending crash in 2016.  His prediction is based on the idea the first wave of baby boomers will turn 70.5 this year and be forced to sell stocks to withdraw their required minimum distributions (RMDs) from their retirement accounts. 

In practice, I know this to be a silly prediction given two realities; one is that most 70 year olds don’t exclusively own stocks in their retirement accounts and second is that many of the baby boomers will simply take their RMD and reinvest the proceeds in their non-retirement accounts.

Despite the logic against his prediction, the point is that predictions about the stock market are a pointless exercise and, if followed, are more likely to hurt your portfolio than help.  Here is one of his past predictions that help prove my point:

Prediction on 2/23/10 = the stock market was in a “dead cat bounce” and a decline to 5,000 on the Dow was likely by the end of the year (the Dow stood at 10,282 on 2/23/10)

Result = the Dow closed at 11,577 on 12/31/10, up 12.6% from the date of his prediction.  To make matters worse, the Dow stands at 17,730 at this moment, up 72% from the date of his prediction.

This is only one example of a high profile “finance expert” who makes bold predictions.  Many of these predictions are scary and seem to make sense.  Unfortunately, the bold statements are simply for show and mainly serve to increase the publicity of the expert.  Stock market predictions shouldn’t be used to make big changes to your investments, especially for those who are approaching retirement. 

Steven Elwell, CFP®, March 30, 2015

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