Instead, accept the uncertainty.
Accept the need to invest without knowing what will happen to your money in the short term. So first, make sure you have enough money set aside in a safe place like a bank account or money market fund to pay the bills for the months to come.
But since the stock market tends to go up over long periods of time, and because bonds are now generating decent returns (as I explained last week), it’s wise to invest in low-cost index funds that last a decade or more that last all year map equity and bond markets.
Don’t base your investments on concrete predictions about where the stock market will go in the short term, because nobody knows. Making bets based on these predictions is gambling, not investing.
Consider how poor Wall Street forecasts were.
In 2020, I found that the median Wall Street forecast had missed its target by an average of 12.9 percentage points per year since 2000. This two-decade blunder was astounding: more than double the stock market’s actual average annual performance!
Imagine such a bad weather forecast. A weather forecaster says the next day’s high will be 25 degrees Fahrenheit and it’s going to snow, so dress for a winter storm. In fact, the temperature turns out to be 60 degrees and the sky is clear. That’s about the level of accuracy for Wall Street strategists through 2020.
They continued their wrong turn the following year, giving a median forecast of 3,800 for the S&P 500 to close in 2021. But the index ended the year at 4,766.18, an error of about 25 percent. In a word, the prediction was terrible.
Forecasts for 2022, as usual, look inaccurate, although we won’t know for sure until later this month. A year ago, Wall Street consensus was that the S&P 500 would hit 4,825 by the end of 2022, a modest increase from 2021. But right now, the index is hovering around 4,000. In other words, a year ago strategists were saying 2022 was going to be good for stocks. It was not.