Don't believe any of the investing forecasts

Wall St. Loves to Guess, but Nobody Knows What the Market Will Do in 2024

So-called stock forecasts don’t deserve the name, our columnist says. Wall Street’s track record is horrendous.

By Jeff Sommer,who writes Strategies, a weekly New York Times column on markets, finance and the economy.

"Wall Street strategists are issuing forecasts for the performance of the stock market in 2024.

Pay them no mind.

The predictions are usually wrong, and when they’re right it’s only by accident."

These forecasts get a tremendous amount of media coverage but aren't worth the paper/pixels they are written on.

Sommer advises: "If you find them entertaining or otherwise illuminating — wonderful. Enjoy them."

"But at all costs, don’t take them at face value because there is no evidence that anyone can predict the market’s movements reliably, and a great deal of evidence that buying and selling stock on the basis of your views about the market’s impending movements is a fool’s game."

It is amazing how much money these investment analysts and gurus are paid to speculate about the future. 

In 2019 who would have predicted Covid 19 and the way it affected economies throughout the world for the next three years?

In 2022, not even the best Pentagon and CIA analysts predicted that Russia would invade Ukraine and disrupt grain markets and raise food prices throughout the world in addition to many other economic impacts. 

Israel, with the best spies, analysts and undercover agents around the world, was taken by surprise by the Hamas attack on October 7, 2023.

Even setting aside these earth shaking events, it is literally impossible to predict the direction of investment markets. Reams of academic research papers have explored this topic and all agree that no one can reliably predict short term investment markets. 

You can't control markets so stick to what you can control: your asset allocation and how much you pay for investing. Choose ultra low cost index mutual funds for your long term goals.

 

What's happening in the stock market during coronavirus?

    THROUGH THE END OF MAY - The S&P 500 is down 5.0% YTD (total return) through 5/29/20. Just 121 stocks in the index are up YTD. The S&P 500 consists of 500 stocks chosen for market size, liquidity and industry group representation. It is a market value weighted index with each stock's weight in the index proportionate to its market value (source: BTN Research).  

TRILLIONS - From its 2/19/20 stock market high, US stocks lost $12.7 trillion in market capitalization through the stock market low close on 3/23/20. From its 3/23/20 low point, US stocks have gained $8.8 trillion in market capitalization through the close of trading last Friday 5/29/20 (source: Wilshire).   Source: David Swapp, CFP® 801-566-6639 | david@networthadvice.com Bottom line: DON"T try to time the market. Decide on your long term goals and tolerance for variability and stick with your chosen asset allocation.

To ease stock-turmoil jitters, try these strategies

Writing for The Wall Street Journal (3/9/20), Anne Tergesen interviewed Dr. Wade Pfau, a leading investing researcher and professor at the American College of Financial Services. For investors far from retirement, there is no need to panic but now is a good time to review your asset allocation. But for those nearing or in retirement, Pfau advises:
1. Check in with Your Accounts. are you investing enough to meet your goals? A quick reminder, using the 4% guideline, you need $1 million to be able to withdraw $40,000/year in retirement with a portfolio of 50-75% stocks. If your tolerance for risk doesn't allow such a high % in stocks, prepare to save a lot more.
Are you appropriately diversified both across and within asset categories?
2. Go More Conservative. Research by Pfau and colleagues suggest entering retirement with 20-30% in stocks and gradually increase the % over time to 50-75%. This recommendation should serve you well to ensure your assets last 30 years even with extended bear markets. This strategy is designed to provide downside protection at the beginning of retirement when you are most vulnerable to losses.
3. Work Longer. If you haven't invested enough, the best strategy is to work longer. If already retired, the current economy offers plenty of part-time work. Working longer, combined with delaying Social Security, is a powerful strategy for ensuring you won't run out of money before you run out of breath. For every year you delay taking SS (up to age 70), your benefit increases 7-8%.
4. Cut Spending. For retirees who are willing to be flexible and cut their spending when investment earnings are down, you can adjust withdrawals to a 4-6% range. You recalculate the "safe" withdrawal rate each year based on the previous years growth (or loss) in your investments. To ensure you don't run out of money you can follow the IRS's Required Minimum Distribution table.
5. Spend from Winners. Start by setting aside 5 years of expense in cash/savings to avoid having to sell investments at a loss. A better strategy is to selectively take your living expenses from assets that have increased in value. Rebalance your assets by moving money from categories that have increased in value to assets that have lost value. This automatically results in buying low and selling high.

Volatility: Financial markets are going crazy... what to do now

With the wild swings in financial markets, how concerned should you be about your investments?
First, remember that any money you expect to need within the next five years should never be invested in the stock market!
This is not like the 2008 financial crisis. It's been an 11 year bull market so too many investors have forgotten that stocks fall as well as rise.
If you panic and sell stocks now you are locking in "paper" losses. Remember buy low and sell high?
Now is a good time to stuff some money into your IRA, 401(k) or other retirement/long term goals accounts.
While the long term trend in the stock market is upward, short term ups and downs come unexpectedly and dramatically. If you choose to cash out and expect to wait until the investing news is good again... you've missed our on dramatic short term increases. You will have sold at a low point (locking in losses) and bought again at high prices, missing out on the benefits of long term stock investments.
So don't panic!
Now is a good time to reassess your tolerance for risk (volatility) and consider your time horizon. It is appropriate to invest in stocks for the long run and have shorter term (less than 5 year) money in more conservative investments or online savings accounts or CDs. Research confirms that investors' risk tolerance (as they perceive it or as shown by risk questionnaires) is high during bull markets and plunges during bear markets.
Are you diversified within and across asset categories? Low-cost index funds are the way to go, both for stocks and bonds and domestically and internationally. 
Review historical rates of return from various stock/bond allocations at:

http://www.vanguard.com/us/insights/saving-investing/model-portfolio-allocations

BUT don't expect such robust rates of return in the future, especially considering the ultra low returns on bond investments. 

Investment Returns

The Callan Periodic Table of Investment Returns depicts annual returns for 10 asset classes, ranked from best to worst performance for each calendar year over a 20 year period. https://www.callan.com/periodic-table/

The most valuable aspect of the colorful table is how easy it is to see that an investment category that topped the chart two years ago may now be sitting at the bottom. There is never a string of more than a couple years where an asset tops the charts. Investing in last years winner means it will likely be further down the table next year.
For example, Large cap stocks were at the bottom of the 10 assets in 2002, in the middle of the pack from 2005-2012, and at the top in 2015 and 2019. Investors buying large cap stocks at the top of the market today are likely to be disappointed in the near future.

Major take-aways:

• Diversification! Invest in all 10 asset categories
• No one can successfully time the market and predict which investment classes will provide the best returns in coming years. 
• Determine your risk tolerance in relation to your investment time horizon and rebalance your portfolio once a year. 

Search for these key words on my blog to learn more: investing, diversify, asset allocation, rebalance portfolio

How much of your portfolio should be invested in stocks in pre-retirement and in early retirement?

The stock market has been extremely volatile in past few weeks. How much volatility can you tolerate on the verge of retirement?
Investors getting ready to retire should have no more than 60% of their portfolios in stocks, writes John Coumarianos, a former Morningstar analyst. A simulation showed that a person retiring in 2000 with $500,000 saved and withdrawing 4% annually would have $424,000 left in 2018 at 60% stocks, $508,000 at 30% stocks, and less than $200,000 left if fully invested in stocks.
Other analyses suggest that pre- and early retirees should have no more than 30-40% invested in stocks. Keep in mind that we are in the longest bull market in history. That doesn't mean a bear market is around the corner but... what if it is? Could you stand to lose (at least on paper and in the short run) up to 50% of your stock portfolio? especially if you have no guaranteed pension?
Time to review your asset allocation and recognize that your tolerance for risk is not as high as you think it is. 

Big drop in investment values in mid-August

Investment performance indexes across the world dropped 3% or more on August 14, 2019. Now is a good time to revisit your asset allocation and risk tolerance in relation to the time horizon for your investment goals.
Numerous studies and the experience of many financial advisors confirms that investors think they have a high tolerance for volatility and risk... as long as markets are going up. But the same people often freak out when big drops occur, confirming that their tolerance for risk is much lower than they thought.
Of course, losses are only on paper (or online) until you actually sell.
How soon will you need your money? No one knows when the next large drop will occur. We are experiencing the longest bull market in history. How long can it last, especially with the current president's crazy trade policies and erratic national policies.
Time to check out some of my blog posts on asset allocation and risk tolerance.

Stocks likely overvalued; time to reblance

"Stocks are Partying Like It’s 1929, 2000 and 2007"

Taking a look at four measures of market value, all at historically high levels

Jan 8, 2015 by Daniel Crosby 
(See also the Dec. 27 post; there seems to be a lot of agreement that stocks are overpriced. This is NOT a prediction of the future but a reminder to rebalance and consider one's asset allocation and exposure to stocks). The bull market is over 5 years old (that's ancient). Crosby writes: "I find the market significantly overvalued and think that some sort of defensive measures will be wise for most investors in the year(s) to come."  Crosby reviews 4 measure of stock valuations and explains: what it is, what it says, and what it means.
1. Shiller Cyclically Adjusted Price to Earnings Ratio (CAPE).
2. S&P 500 Price to Earnings Ratio
3. Wilshire 5000/GDP – aka, “Buffett Valuation Indicator”
4. Crosby Irrationality Index
If you are a long way from retirement- no worries. "But for those nearing retirement, an unambiguous picture seems to be emerging that returns for the next 8 to 10 years are likely to be depressed in light of the eye-popping returns of the more recent past.  Do not act in haste or deviate from your plan if one is in place, but please accept this gentle warning from a concerned party who knows that 'this time is never different.'" 

5 Simple steps to perfect portfolio

These 5 simple rules will help you build the right asset mix and avoid a hodgepodge that won't achieve your retirement goals. Walter Updegrave recommends these five questions to help you assess your portfolio. Keep it Simple!

1. Do you need the fingers of both hands to count your investments?

2. Do you own investments you don’t really understand? 

3. Can you explain exactly why you bought each investment you own? 

4. Do you own investments that you’ve never touched after buying?

5. Do you regularly add new investments to your portfolio?  

For details: http://time.com/money/3263186/diversifying-portfolio-5-rules/

Asset Allocation Podcast

Listen to this 5 minute podcast on asset allocation from FINRA: http://www.finra.org/Investors/SmartInvesting/GettingStarted/Podcasts/MoneyManagement/P515934?utm_source=MM&utm_medium=email&utm_campaign=Investor_News_062614_FINAL
Check out other FINRA resources and podcasts: http://www.finra.org/Investors/SmartInvesting/GettingStarted/

Simple Investing

Funds Investing: Make More Money and Worry Less

Some simple portfolio ideas that can help investors stay on track with minimum management

Quoted from Andrea Coombes WSJ Sunday Journal, April 5, 201:

“If you're investing for a long-term goal such as retirement, then keeping it simple with a portfolio of three to six broad-based, low-cost mutual funds can pay off in the long run. Rebalance on occasion, and you'll be well on your way.

Consider this: A portfolio composed of three such funds from Vanguard Group—40% in the Vanguard Total Stock Market Index Fund (VTSMX), 20% in the Vanguard Total International Stock Index Fund (VGTSX) and 40% in the Vanguard Total Bond Market Index Fund (VBMFX)—beat 5,000 variations of similarly composed portfolios of actively managed funds more than 80% of the time over a 16-year period (1997-2012), according to a recent study.

(You can read the study, coauthored by Rick Ferri, founder of investment-management firm Portfolio Solutions, at RickFerri.com.)

Even with just three funds, that type of portfolio "is extremely diversified," says William Bernstein, author of "The Investor's Manifesto" and a principal at Efficient Frontier Advisors. "You basically own almost every significant equity offering in the world."

The hard part is figuring out what percentage of your portfolio to devote to each asset class. That will depend on your risk tolerance, financial situation and time horizon. If you're not sure, there's always that handy rule of thumb: Put a percentage equal to your age in bonds and the rest in equities.” http://online.wsj.com/news/articles/SB10001424052702304441304579477442649398388?mod=dist_smartbrief

Time to check your asset allocation?

Recent research suggests it may be long past time for boomers to reevaluate their asset allocation.  The 2008-09 global financial crisis and investments losses should have taught some lessons about risky asset allocations but about ¼ of investors are asleep at the wheel and may be jolted awake (or worse) by the next bear market.  According to a study of IRA assets by the Employee Benefit Research Institute, “Among account holders ages 55 to 64, more than one in four (29%) had more than 90% of their holdings in equities.” Yikes, that’s risky!  A similar EBRI study of 401(k) plans came to a similar conclusion.  Read more at about “The rise of ‘extreme’ retirement portfolios” by Glenn Ruffenach at http://blogs.marketwatch.com/encore/2013/10/14/the-rise-of-extreme-retirement-portfolios/