Forecasting is Hard…and a Fool’s Errand After Taxes

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On the investor’s calendar, the turn of the year is a time for predictions. Advisors like us and clients like you are deluged with “market outlooks” that offer perspectives on what’s next in the economy, the stock market and geopolitics. Accompanying these are the investment equivalent of tabloid headlines… Are interest rates peaking? Is the risk of a recession still on the table? What might 2024 hold for the stock market? Who will win the election and what does it mean for your brokerage account? Enquiring minds want to know.1

While fun cocktail party chatter, it turns out these annual forecasts are close to worthless helping you make better decisions. To drive this point, we recreate an exhibit from Avantis Investors showed in the exhibit below the median stock market forecasts of Wall Street and the actual returns of the S & P 500. The estimates ranged from 26% too low to 21% too high.

actual S&P

What about longer-term forecasts? Many institutional investors – the big pensions and endowments – rely upon ten-year expectations from their consultants. The thinking goes that the big annual gyrations will even out to arrive at some reasonable assumptions, right?