It’s early in the new year, so the pundits are out in force. I’ve often cautioned against relying on someone’s prediction of where the investment markets are headed. First, these are no more than educated guesses, at best. Second, investors tend to believe the expert forecast that most closely aligns with their own. In other words, if you’re bearish, you’ll find comfort in bearish forecasts and vice versa. The technical term for this is “confirmation bias.”
Whenever there’s big news in the investment markets, like the terrible performance of both stocks and bonds in 2022, the pundits come out en masse with their bold predictions. I once observed a pair of conflicting forecasts of stock performance when the market was taking a drubbing. These appeared on a single cable business program. The first forecast was for a 10% rebound in the Standard & Poor’s 500 Stock Index. The bulls must have been thrilled. Within a half hour of that guesstimate came a forecast that stocks were in the midst of a correction that would drop prices another of 5 to 10% – fodder for the bears. What struck me as particularly odd about these two divergent prognostications was that they were made by the same person! I guess it’s hard to quibble with his forecasts. As the saying goes, if you want to predict accurately, predict often.
One more caveat: a year is an eternity in the investment punditry business. The shorter the duration of the forecast, the less likely it will be accurate. Even one-year forecasts are as likely to be wrong as right. Because it is based on many decades of consistent relative performance, the only forecast that can be relied upon is that over long periods of time, at least ten years. Stocks will outperform bonds and bonds will outperform so-called cash equivalents like money market funds and savings accounts.
Smart Money Tips
- Insuring your household possessions. Weather-related events have been brutal in many areas of the country. No one is immune from suffering a loss of their household possessions through theft, fire, or another calamity. So, it behooves you to make sure you have adequate insurance coverage against theft and other perils. The basic homeowners or renters insurance policy provides some protection, but usually not enough. Here are two optional extras to consider: First, replacement cost coverage will reimburse you for losses in an amount that will pay to replace the lost items with new ones. The standard policy usually reimburses only for depreciated value, so even though you have coverage, without optional replacement cost coverage, you could still be out a lot of money when you replace lost property. You’ll probably be pleasantly surprised to find that replacement cost coverage doesn’t cost very much. Second, since the standard policy has very strict limits on how much it will pay for your valuable possessions like jewelry and silverware, you would be wise to obtain full replacement cost coverage for your valuables with a so-called “floater” policy. The cost of this insurance can add up if you have a lot of valuables, but that may be a small price to pay if these expensive possessions are lost or damaged.
- You never know… You never know when something may befall you or a loved one that will require someone else to step in to make essential healthcare decisions. These events, while rare, may arise even for younger people. A healthcare proxy is a legal document with which an individual appoints an agent to legally make healthcare decisions on behalf of the patient when he or she is incapable of doing so. Once the healthcare proxy is effective, the individual continues to make healthcare decisions as long as he or she is legally competent to decide. Without a healthcare proxy, suffice to say that a real mess will ensue at a crucial time. A healthcare proxy is usually prepared at the same time a will is drafted. That’s an important first step. Equally important is informing family members or other parties as to where the healthcare proxy is located. Stories abound of people who have prepared this important document but are unable to locate it when the health care providers need it.
Food for Thought
Do you wish to rise? Begin by descending. You plan a tower that will pierce the clouds? Lay first the foundation of humility.
-St. Augustine of Hippo (354-430)
Money Can Be Funny
Don’t tax you. Don’t tax me. Tax that fellow behind the tree.
-Louisiana Senator Russell B. Long
(explaining tax reform)
Word of the Week
facinorous (fa-SIN-uhr-uhs), adjective – Extremely wicked
Origin: From Latin facinorous, from facinus (bad deed), from facere (to do or make)
Many fans were favoring the Chiefs over the Eagles because of the perceived facinorous behavior of the Eagles