This time of year is rife with economists, investment professionals and journalists making predictions as to where they think global markets will go in 2018. These predictions often range from markets completely flopping to markets flying high and having a bumper year.
The sheer range in the predictions always makes me chuckle. At the time of writing I have seen one forecast of the FTSE 100 finishing 2018 at 6,900 and another finishing 2018 at 8,600 (the FTSE opened today at 7,537.01).
But how can two sets of ‘experts’ with the same set of data predict opposite outcomes? The key to this whole argument is that all known information that can affect the future price of a stock has already been priced in. The only thing that isn’t is unknown events which are, well, unknown! This makes predicting the next 12 months of performance impossible.
My view is that it’s not only impossible to predict, but also largely irrelevant. Now before everyone thinks I’ve gone mad (how can a financial planner think market returns are irrelevant?!?), let me explain…
If you are investing in the stock market it should be for the long-term. This means investing for 10, 20 and even 30+ years. If that is the case then what happens in the next 12 months isn’t important in comparison to the long-term performance.
Investing in the stock market will always be a bumpy ride. There will always be a ‘crisis of the day’. More than anything else, crisis and drama is what sells newspapers. However, when true crisis hits, it’s important to have a clear investment approach and remember why you are investing in the first place. In order to enjoy the long-term returns of investing, you have to take the rough with the smooth.
I hope you have a very merry Christmas and I look forward to a happy, healthy and optimistic 2018.
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