New Year, New Prediction
Key Takeaways
The start of the new year is always flooded with predictions of how markets will behave. Financial organisations do this to potentially be correct and to attract media attention for airtime.
2024 predictions largely urged caution, encouraging investors to seek the safety of bonds. If you had listened to them, it might have cost you 20% in unrealised returns.
All in all, take 2025’s predictions with a huge helping of salt. Stable yourself by knowing your goals, how far away you are from them, and how well you are tracking towards them.
Never make predictions,
especially about the future.— Casey Stengel
With every new year comes new predictions by banks, money managers, investment professionals, and even some of your financial advisers on how markets are expected to perform over the coming year.
Over time, we have come to realise that the only purpose of these market outlooks is for us to look back at the previous year’s forecasts and point out how far off some of these predictions were.
Our job as fiduciaries is to keep you from straying off the path; leaning on these predictions to guide their investment decisions which often results in damaging investment outcomes.
Bloomberg publishes a summary of all the outlooks of the major financial institutions around the world — Here's (Almost) Everything Wall Street Expects in 2025, of which the return of Trump appears to dominate the headlines.
Given what Trump could do with his power, the broad consensus is that the US economy (and market) would rise above all other countries given his preference to be domestically helpful and harmful internationally.
Before you jump on these outlooks and shove all your assets into US assets, let’s take a look at how the predictions for 2024 panned out. The short of it is that most of them paint a rather gloomy picture, save for a few positive calls for equities. Most of them urged caution and preferred the safety of bonds.
2024 predictions by the who’s-who
It turned out to be quite the opposite
Admittedly, the argument can be made that the call for a global recession in 2024 was rather logical; it made sense to play it a little safe for fear of market losses. Had an investor shunned equities for bonds, they would have paid the price with the big opportunity cost from the difference in returns shown in the chart below.
Missing by a longshot
A highlight for these annual forecasting events is the target end price for the S&P 500 that these institutions would issue — something that they could brag about (if they got it correct); additionally, it would also invite calls for them to defend why they thought so on the financial news, granting them air time.
We have tracked these forecasts for a number of years and the accuracy level is quite appalling. For instance, even the most optimistic forecast for 2024 was more than 16% away from where the S&P 500 actually ended up for the year!
What do you do then if you cannot rely on these forecasts to make a decision?
All you need to know are your goals, how far away you are from them, and how well you are tracking towards them.
If you are 20 years away from your target, then these short-term annual forecasts hold no meaning to you. Conversely, if you are 1 year away from your target, these forecasts still hold no meaning because you should be preparing to receive the outcome of your investment.
If you ask us what our views are for 2025, our answer is that we really don’t know. What we can tell you for a fact is that you would likely swing from euphoria to despair at some point or another; some sort of volatility is unavoidable. But could be comforting to remind yourself that with uncertainty comes opportunity and excitement.
What we also know is that the long-term expected returns from broadly diversified global equity markets are around 8% per annum, and broadly diversified global bond markets are around 4%. Any fluctuations on an annual basis above or below these ranges are part of the unexpected component which comes from investing. So as long as you are tracking towards your goal, don’t worry too much about what Trump could do to your portfolio.
So how do we manage the unexpected bit? That’s where we come in to guide you through and walk with you when the world looks a little too uncertain for comfort. For more information, come and have a chat with us.
