Why do expert predictions often miss the mark?

Predicting the future has been a favourite source of conversation for thousands of years. This is especially the case in investment markets where ‘expert’ predictions earn enormous coverage through the media and online. Unfortunately, thanks to social media, there are also many non-expert opinions.

There are many examples of how difficult predictions are for even the most informed commentators. Recently 3 of the 4 big banks in Australia predicted interest rate rises by the RBA incorrectly. As world-famous investor Warren Buffet commented recently, “Nothing is sure tomorrow, nothing is sure next year, and nothing is ever sure, either in markets or in business forecasts, or in anything else.”

Why do predictions miss so often?

If you think about it, the challenge of predicting economies and financial markets is understandable. There are so many variables and uncertainties that are beyond the accounting and mathematical modelling of experts and the underlying assumptions upon which they are built.

Events such as a pandemic or the outbreak of war can impact the supply of key commodities, catastrophic climatic events severely impact populations, disrupt commerce, and necessarily require huge focus and resources to rectify. Even if these events are predictable, their timing is usually impossible to know, and responses to these events can be subjective and wide-ranging.

Predictions are part of what we call ‘market noise’.  Most of it deals with short investment horizons, typically the year ahead. It’s not because professionals think in those terms, but journalists tend to frame their questions in annual frameworks.

How should investors respond?

The skilled investor must pick a way through this short-term noise and keep an eye on the long game to achieve your financial goals over time. Superannuation is obviously a long-term investment, but even investments outside your super in shares, property or fixed-income securities should be viewed across the medium to long-term, generally at least three to 10 years for most asset classes.

This requires a financial strategy, which takes into account your current financial situation, your regular living costs and commitments, your appetite for risk and your longer-term goals. From this, you can develop a framework in which to build an investment strategy and portfolio that will help get you there.

Partnering on strategy

Partnering with a professional planner can help in developing a strategy and investment selection. For many investors, investing in the plan is one of the best financial decisions they make.

Ultimately, a professional financial planner becomes a trusted essential partner with whom to exchange ideas on strategy and the fit of investment opportunities as they arise.

Investments a means to an end

When all is said and done, you should remember that your investments are not an end in themselves. The purpose of investing goes beyond creating wealth. Your investments are there to support your life goals, your sense of security and the lifestyle you would like to enjoy.

With a well-diversified investment portfolio aligned with your appetite for risk, you can ignore the market noise and sail through the ups and downs of investment markets.

The best financial strategies deliver peace of mind while you focus on what matters – living your best life.

The information contained in this article is general information only. It is not intended to be a recommendation, offer, advice or invitation to purchase, sell or otherwise deal in securities or other investments. Before making any decision in respect to a financial product, you should seek advice from an appropriately qualified professional. We believe that the information contained in this document is accurate. However, we are not specifically licensed to provide tax or legal advice and any information that may relate to you should be confirmed with your tax or legal adviser.

Share this post