Over our lifespan, we baby boomers have lived through the Cuban Missile Crisis, JFK’s assassination, the Vietnam War, Richard Nixon’s resignation, the Iranian hostage crisis, the AIDs epidemic, and many other important and terrible historical events that are too numerous to mention – but they were not reported to us in real time like the news of today.
This negative information overload, discussed in Chip Workman’s blog last week, creates a constant sense of crisis and increases our anxiety level about our financial security. We’re getting older, and we realize we have less time to accumulate the savings we need to retire, or we are fearful about running out of the funds we currently live on in retirement. The 2007-2010 stock market gyrations haven’t helped. We want someone to tell us what is going to happen next.
The media capitalizes on our anxiety, and makes a living feeding our need to hear from ‘experts’ who tell us which way the market is headed and why. But seeking out predictions and acting on them is not a solution.
I can offer hundreds of examples of economic and market predictions that turned out to be horribly wrong over the last three years alone. In a September 1, 2007 Forbes article entitled, “The Fall 2007 Rally, ” Ken Fisher, a well-published money manager wrote, “This is a phony credit crunch… a few months from now we will be wondering what all the fuss was about.”
There were others that were right in their predictions, but terrible in their timing. Dr. Nouriel Roubini correctly predicted the housing bubble would cause a recession, but he made the prediction in 2004. If you took his advice and moved out of the market, you missed the 2004, 2005 and 2006 stock market returns. After three years of waiting for the fall, you probably gave up and moved back into the stock market in time for Bear Stearns and Lehman Brothers to collapse and kick off the recession.
Others are right in their timing, but wrong about what to do about it. Peter Schiff, President of Euro Pacific Capital, became a media darling in 2008 for predicting the market fall. But to protect his clients from the coming drop he moved them into commodities, international stocks, and shorted the dollar. As a result, their portfolios fell 60- 70% when they could have remained in the S&P 500 and lost 38%.
Our world is too complex for anyone to accurately predict what is going to happen and successfully reposition their portfolios to prepare. Yet the question – “What do you think is going to happen?” – is asked over and over by some people.
I have been a Certified Financial Planner since 1988, and based on my experience, the people who ask me this most often are the same people who refuse to create a financial plan. As a result, they feel uncertain about their future, anxious, and more vulnerable to panic when yet another negative news report about the Dow crosses their TV screen.