Instead, embrace uncertainty.
Accept that you need to invest without knowing what will happen to your money in the short term. So first, make sure you have enough money in a safe place such as a bank account or money market fund to pay your bills in the coming months.
But with the stock market trending upwards over the long term and bonds currently generating reasonable returns (as we discussed last week), invest in low-cost index funds that track the whole 10+ year horizon. It is wise stock and bond markets.
Don’t invest based on any particular prediction of where the stock market will go in the short term. Because no one knows. Placing a bet based on these predictions is gambling, not an investment.
Think how bad Wall Street’s predictions were.
In 2020, we noticed that the median Wall Street forecast since 2000 fell short of target by an average of 12.9% per year. This 20-year error of his was astonishing. More than double the actual annual average performance of the stock market.
Imagine a weather forecast as bad as that. Meteorologists say the next day will have highs of 25 degrees Fahrenheit and snow, so dress for winter storms. In fact, the temperature is 60 degrees and the sky is clear. This is about the same level of precision that Wall Street strategists will expect by 2020.
They continued their misguided approach the following year, announcing a median forecast for the S&P 500 closing price in 2021 of 3,800. 4,766.18, an error of about 25%. In a nutshell, the expectations were the worst.
Forecasts for 2022 look as inaccurate as ever, but we won’t know for sure until the end of the month. A year ago, Wall Street consensus was that the S&P 500 would hit 4,825 by the end of 2022. This is a slight increase from 2021. But for now, the index is hovering around 4,000. In other words, a year ago the strategist said 2022 would be fine for equities. it’s not.