Instead, embrace uncertainty.
Accept that you need to invest without knowing what will happen to your money in the short term. So make sure, first, that you have enough money in a safe place, like a bank account or money market fund, to pay bills in the coming months.
But since the stock market tends to rise over the long term and bonds are now generating reasonable returns (as I explained last week), it’s wise to keep a general eye on low-cost index funds for a decade or more. Stock and bond markets.
Don’t base your investments on specific predictions of where the stock market is headed in the short term, because nobody knows. Betting on these predictions is gambling, not investing.
Consider how bad Wall Street’s forecasts are.
In the year By 2020, I note that the median Wall Street forecast since 2000 has missed its target by an average of 12.9 percentage points per year. That error was astounding for two decades: the average annual performance of the stock market more than doubled!
Guess the weather forecast is that bad. The meteorologist says the next day’s high will be 25 degrees Fahrenheit and it will snow, so dress for a winter storm. In fact, the temperature changes to 60 degrees and the sky is clear. That’s the level of accuracy for Wall Street strategists through 2020.
They continued on their erratic path the following year, issuing an average forecast of 3,800 for the S&P 500 to close in 2021. However, the index ended the year at 4,766.18, a 25 percent error. In a word, the prognosis was terrible.
The 2022 predictions seem to be wrong as usual, although we won’t know for sure until later this month. A year ago, the Wall Street consensus was that the S&P 500 would reach 4,825 by the end of 2022, a modest increase from 2021. But the index is currently hovering around 4,000. In other words, a year ago, strategists were saying 2022 would be good for stocks. It didn’t happen.