{"id":2909,"date":"2022-08-11T08:02:17","date_gmt":"2022-08-11T08:02:17","guid":{"rendered":"https:\/\/www.fpgonline.co.uk\/?p=2909"},"modified":"2023-09-19T09:51:44","modified_gmt":"2023-09-19T09:51:44","slug":"the-difference-between-a-forecast-a-wish-and-a-worry","status":"publish","type":"post","link":"https:\/\/www.fpgonline.co.uk\/index.php\/the-difference-between-a-forecast-a-wish-and-a-worry\/","title":{"rendered":"The Difference Between a Forecast, a Wish, and a Worry"},"content":{"rendered":"

<\/b>By\u00a0David Booth\u00a0Executive Chairman and Founder of Dimensional Fund Advisors<\/strong><\/p>\n

When I was growing up, our local newspaper, the\u00a0Kansas City Star<\/i>, was full of news and had one page for opinion. After decades of cable news and nonstop digital postings, I see more opinions these days than news. That\u2019s not a bad thing. But when it comes to investing, it\u2019s crucial to remember the difference between news and opinion, and how they are sometimes used to forecast the future.<\/p>\n

Any time the government releases new data on unemployment or inflation or interest rate changes, people start claiming they can forecast the future. That\u2019s not necessarily a bad thing either. But most of what I hear people say isn\u2019t what I would call \u201cforecasting.\u201d<\/p>\n

Forecasting is when you have a high degree of confidence in an outcome based on well-proven models. The weather forecast for a few days from now is a lot better than anything I read in the\u00a0Kansas City Star<\/i>\u00a0about investing. The weather forecast is pretty darn accurate. I\u2019d sure call that kind of forecast the right use of the word. That\u2019s different from someone issuing a \u201cforecast\u201d for when the Dow will hit a certain number. Or when inflation will reach a certain level. Or which five stocks will rise the most over the next year.<\/p>\n

So when people say they forecast that something will be at this level at that time, I don\u2019t call that a forecast.<\/p>\n

That\u2019s a wish.<\/p>\n

And when people forecast that something will go down at a certain time?<\/p>\n

That\u2019s a worry.<\/p>\n

Do you really want to invest your hard-earned savings\u2014the money you\u2019ll need for your kids\u2019 education or your own retirement\u2014based on someone\u2019s hunch or wish?<\/p>\n

The good news is you can have a good experience without having to do any forecasting\u2014I believe you just need to be a long-term investor with a truly diversified portfolio.<\/p>\n

Do you really want to invest your hard-earned savings\u2014the money you\u2019ll need for your kids\u2019 education or your own retirement\u2014based on someone\u2019s hunch or wish?<\/i><\/p>\n

Over the last 100 years or so, the average return of the market has been about 10% a year.1<\/sup><\/b>\u00a0I won\u2019t call it a forecast, but my best guess is that over the next 100 years the average annual return will be about 10%. Of course, there may be large fluctuations, just like we have experienced for the last 100 years (and like we have experienced in the last six months).<\/p>\n

Instead of forecasting, focus on the power of what I think has been behind the stock returns of the last 100 years: human ingenuity. Millions of people at thousands of companies working to improve their product, enhance their service, and lower their costs\u2014and all adapting in real time to a changing world. We witnessed the power of human ingenuity over the course of the pandemic. I\u2019m seeing it again as companies adjust to deal with inflation.<\/p>\n

The world has changed in so many ways since I was a kid reading the\u00a0Kansas City Star<\/i>. I still occasionally read it on my phone now. (It makes me chuckle when I imagine trying to explain to my grandparents that I read the newspaper on the phone.) While I expect the world to keep changing\u2014I\u2019m not forecasting when or how\u2014I am confident that human ingenuity will be a constant. Whether in good times or bad, that\u2019s reason to be optimistic.<\/p>\n

\n

If you would like to find out more about investment strategies for 2022 and beyond, please call Tim Norris on 020 8614 4780 or e-mail Tim.Norris@fpgonline.co.uk.<\/strong><\/p>\n<\/div>\n

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FOOTNOTES<\/b><\/p>\n

    \n
  1. 1\u00a0<\/sup><\/b>In US dollars. S&P 500 Index annual returns 1926\u20132021. S&P data \u00a9 2022 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio.<\/li>\n<\/ol>\n

    Risks
    \nInvestments involve risks. The investment return and principal value of an investment may fluctuate so that an investor\u2019s shares, when redeemed, may be worth more or less than their original value. Past performance is not a guarantee of future results. There is no guarantee strategies will be successful.<\/b><\/p>\n

    Diversification does not eliminate the risk of market loss.<\/b><\/p>\n","protected":false},"excerpt":{"rendered":"

    By\u00a0David Booth\u00a0Executive Chairman and Founder of Dimensional Fund Advisors When I was growing up, our local newspaper, the\u00a0Kansas City Star, was full of news and had one page for opinion. After decades of cable news and nonstop digital postings, I see more opinions these days than news. That\u2019s not a bad thing. 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