‘Tis the season for 2023 forecasts on Wall Street, but it’s nearly impossible to accurately predict what the markets will do in the next six months or year, and the financial world should stop relying on them, contends an article in The New York Times. Instead, investors would do better to embrace uncertainty and come to peace with the fact that you won’t know what will happen to your money in the short term. After setting aside enough money to cover expenses, it’s better to invest with a long-term horizon in mind, such as a decade or more, and put money “into low-cost index funds that track the entire stock and bond markets.”
Wall Street forecasts have a notoriously bad track record; since the year 2000, the median prediction has been off its mark by 12.9% on average per year. Given that unreliability, basing investments on short-term predictions “is gambling, not investing,” the article maintains. Forecasts for 2021 were too low, and then too high for 2022; now, for 2023, strategists are holding steady on the expectation that the S&P 500 will finish the year at 4,009. But it’s impossible to say for sure whether that will come to pass. After all, no one predicted the pandemic, or Russia’s invasion of Ukraine, or that energy companies would be the big winners this year. Who knows what massive shift will occur in 2023?
Given that uncertainty, it’s best to diversify, the article advises. Be prepared to ride out losses for a stretch, and hedge your bets so that a market roller coaster won’t throw you out of your seat. While that may be painful in the short term, it is bound to pay off in the longer term. And even though the classic 60% stocks/40% bonds portfolio split did awful this year, those portfolios, such as the Vanguard Balanced Fund, still gained over 6% annualized for the last 20 years, doubling in value every decade or so—gains that Vanguard said would likely continue into the future. Vanguard has long recognized that market predictions are unreliable and doesn’t use them, instead making estimates for returns on their investments over a longer-term, 10-year horizon. And indeed, their 10-year outlook appears to be very positive, optimism that is not out of place when looking ahead the next 10, 20, or 30 years, the article posits. While it’s impossible to know the path the market will take next year, investing long-term into total stock and bond markets while looking much further into the future will bring more chance of prosperity.
