Don’t Get Sucked Into Stock Market Predictions

by | Jan 11, 2022 | Blog

The beginning of a new year always lends itself for stock market pundits to make predictions about what the coming year will bring. Know this, stock market predictions are for entertainment purposes only.

The S&P will end up here!

The Nasdaq will do what?

You really think XYZ will be the best performing stock this year?

These headlines are made to draw reactions.

When you see the talking heads on financial TV making these types of claims and providing smart sounding reasons to back them up, know they are really just guessing. Beware of “advice” that says it happened this way before, so that means it will happen this way again.

Drawing straight lines between stock market statistics or news events is a dangerous game.

Of course it’s fine (and important) to stay up to date on the latest news. But mistakes happen when portfolio changes are made based on feelings and predictions.

The latest prediction is that the Federal Reserve will raise interest rates 3 or 4 times in 2022 to help curb inflation. And the implication is that this will be bad for the stock market.

Two quick points on this, the last time the Fed raised rates starting in late 2015 and ending in 2018, the market was just fine during that time period. I’m not saying that it’s going to happen this way again but it’s a point to counter the seemingly consensus narrative that higher rates are bad for the stock market.

We also talked on a recent podcast about the Federal Reserve doing something that’s referred to as “jawboning”. That is, simply talking about making changes to monetary policy, or interest rates, as a tool to affect change. Sometimes talking about making changes is enough.

We’re not in the prediction business. We’re in the business of acting in a fiduciary capacity for our clients. And that means not ripping up the script because someone on TV said this bad thing could happen. That means having a rules based investment process. That means ensuring that we understand the context of our clients’ financial situation and plan around THEIR LIVES.

Here are some things to focus on instead of getting sucked into stock market predictions for 2022:

  • Not having money that’s needed in the next 1-2 years at risk in the stock market. Nobody knows what the stock market is going to do in the short term. Risking money that is earmarked for near term expenses is going to erode your peace of mind. Not worth the stress.
  • Focus on the long term by maxing out your retirement accounts. If you don’t need the money for 3+ years and the stock market does go down, then you are buying shares of companies at lower prices, which is a good thing.
  • Trust your financial plan. Financial planning and investing are highly personal. It’s so important to view the latest trends/news within the proper context. A good financial plan is one that is built to withstand all types of market conditions, good, bad or sideways. Sometimes, most times, the latest news/predictions/headlines won’t mean anything for your specific financial plan. Keep your eye on the ball.
  • Know that all-in/all-out investing does NOT work. Thinking you can “get out” and sidestep stock market volatility is a futile exercise. The stock market’s best and worst days often occur close together. And not only would you have to nail “getting out” you’d have to nail “getting back in” too. Even if you could predict the future, you wouldn’t know how the market would react to it.

If 2020 and 2021 taught us anything, it’s that a lot can change quickly. The world got turned upside down and the stock market made all-time highs. Who predicted that?

The biggest risks in life, and investing, are the ones that no one can predict. Trying to make predictions about the future can be fun, and entertaining. But making wholesale changes to your investments or financial plan based on what someone *thinks* is going to happen is not a recipe for success.

We’re not saying to stick your head in the sand and not pay attention to what’s happening in the world around you. We’re saying to take it with a grain of salt. Try not to let the doom and gloom predictions stress you out, or make you feel like you should be doing something. Because you probably shouldn’t.

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