Gas prices, grocery store bills, and interest rates have all been rising at a fairly high rate recently. It seems to be what everyone is talking about. The question is, where are they headed next?
To be blunt and to the point, no one knows and listening to those that claim they do is about as foolish as the predictions being made. Just look at this chart that shows where every single analyst on Wall Street had said they believed interest rates would be 6 and 12 months later at the start of each year (the blue dots) and where interest rates actually went (black line). You can see that for 3 out of the last 4 years interest rates were either lower than the lowest prediction from Wall Street or higher than the highest prediction. Not exactly a great track record. The numbers are even worse when you look to the stock market. 10 out of the last 12 years the SP 500 has either finished higher than the highest prediction or lower than the lowest prediction.
Trying to ascertain what financial markets may do in the short run is like trying to guess which raindrop might make it to the bottom of a window first. It is simply impossible to do with any sort of accuracy, even for those whose primary job it is to do so. Despite this, many financial TV shows, newspapers, websites, and even portfolio managers are constantly trying to forecast the next short-term move. Everyone likes certainty and to know what’s next, which is why this practice of wildly inaccurate guessing continues and why people keep listening. If you want to be successful financially, though, you need to ignore the noise. Basing your financial future on what someone said is going to happen in the short run is a surefire way to find yourself facing negative results.
A wiser course of action is to create a plan where short-term financial market movements and all the uncertainty surrounding them can be ignored. If you’re sure you’re going to have ever increasing income in retirement to overcome ever increasing prices regardless of what any financial market (be it stocks, bonds, real estate, precious metals, commodities, etc.) might do over the next month or year then it is much easier to ignore those that are more often wrong than they are right. The fact is that it is not a question of if but when, and how many times, major financial markets will temporarily decrease in value when you’re retired. Failing to have a plan for this inevitable scenario usually means you’re planning to fail as you’ll likely fall victim to emotional decision-making and start listening to and acting on rarely right predictions.
The next time you hear someone say where they believe the stock market, interest rates, oil prices, etc. are going in the near future, remember this article and chart. Then remember to ignore them. If any short-term movement of any asset is going to make or break your retirement you either have no plan or a poor one. If you’re feeling the urge to act on a prediction you’ve recently seen or heard, you should instead consider speaking with a financial professional that can help create a comprehensive strategy that covers tax reduction, Social Security timing, pension decisions, and inflation fighting income streams.
If you’d like help from a retirement planning firm with decades of experience in Topeka, give us a call at 785-228-0222 or fill out the form below for a complimentary 3 step review.