People love to make predictions, especially in January, when everyone is looking forward to the year ahead. Furthermore, this January we now have Donald Trump as the new US President and the most powerful man on the planet and the leader of the world’s largest economy to consider.
However, it’s fair to say that when it comes to investing, accurate forecasting is practically impossible, and, even when a prediction turns out to be accurate, it is hard to say whether it was the result of luck or skill.
Rather than speculating and relying on predictions for your investment strategy, as many people do, a more sensible approach is to make assumptions based on decades of evidence from market data and academic analysis. In other words, it’s probably best to assume that:
o Capitalism will remain the world’s preeminent economic model and will continue to provide a steady return to those invested in it.
o On average, certain types of security will perform better than others over time, so it is worthwhile focusing on those in your portfolio.
o Holding a high number of lower-risk, defensive assets and higher-risk, growth assets, will help manage risk and increase the reliability of investment returns.
You could argue that these statements are predictions themselves because they relate to future events. But which would you rather have form the basis of your investment strategy and your financial future? These three statements—or, as is the case with many conventional, investment strategies, the changing guidance of a small group of investment insiders and speculators (or so-called experts)?
Some forecasts, however, are worth making in relation to your own financial planning—generally those over which you have a degree of influence. For instance, when you plan to retire and how much money you will need to meet your desired lifestyle. Sensible judgements like these are key to forming an effective financial plan.
Making fun forecasts about sports results or speculating about the direction of the pound or the fate of the eurozone is one thing. Basing your investment strategy and your financial future on forecasts and speculation is something else altogether and is certainly not wise.
Sensible investing is possible if you work with a financial planning and investment company which starts with information you know is supported by decades of evidence and then builds their investment philosophy and strategy around it – this way you can top trump your investment plan in 2017 and improve your chances of pursuing a better investment experience.