Tis the Season of Forecasts

Tis the Season of Forecasts

Every December we get inundated with investment forecasts for the following year. These forecasts range from expected GDP and interest rates to stock market performance.

Our Attraction to Forecasts

We are naturally attracted to forecasts because they purport to tell us what is going to happen, and they often are supported by persuasive reasoning and statistical analysis. After listening to a confident and persuasive forecast, especially if it is one we hope will come to pass, we may be inclined to make changes to our investment strategies in line with that forecast.

But herein lies the mental deception. While forecasts appear to reduce future uncertainty, that is only an illusion because the markets are simply unpredictable.

Flawed Forecasts

Over the past 20 years, when polling economists and market strategists as a group to come up with a consensus forecast, not once did they forecast the stock market would be down the following year. Yet, we experienced six negative years. But that is not all. Experts predicted several recessions that never occurred and have been predicting a bubble for the last several years.

When it comes to forecasting the market and economy, it’s not so much about someone’s experience or knowledge. It’s about the predictability of the event. The market is impossible to predict because the future, by definition, is uncertain.

Unexpected events (life happens), our responses to world events, and randomness make accurately forecasting the markets an impossible task. The proof is in the fact that no one can do it – consistently.

Pursuing Healthy Forecasts

Not all forecasts need be ignored. Some are better than others. Forecasts that offer a large range of potential outcomes can be helpful in setting our expectations for the future. Creating a vision of what is possible in the future is much more beneficial for our planning and decision-making than a specific forecast. Remember, the more specific the forecast, the more likely it will be wrong.

In the course of my work, I do read and review many forecasts that are published. As always, I look forward to sharing with you in the coming weeks my thoughts along with productive expectations and perspectives to help us have a great 2022, no matter what the markets may do.

As we move into December, I wish you a Merry Christmas, happy holidays, and a blessed New Year!

– Kaleb Paddock, CFP®

Learn More

You can learn more about Ten Talents and Kaleb Paddock, a financial advisor based in Parker, Colorado, by clicking here.

Kaleb can be reached at (303) 961-4397 or kaleb@tentalentsfp.com.

You can check out the Ten Talents YouTube channel by clicking here.

©2021 Behavioral Finance Network. Used with Permission.

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