January is famously the month for predictions about everything, from politics to money, so as we start the new year, we’d like to share a few thoughts with you about why financial predictions don’t work – and what to focus on instead.
The Folly of Forecasting
9-11. Lehman Brothers. COVID. Russia invading Ukraine. These are just a few of the most recent major events that have significantly impacted our world – and the market. One of the things they all have in common is that they were largely unanticipated by forecasters. And that’s not surprising, because when you look back over history, you’ll find that many of the biggest economic risks we’ve faced were things that no one could have seen coming.
The first problem, then, with predictions is that they miss things. Big things. The second problem is that even when they get something right, they can’t keep up that track record of accurate prediction. And to benefit financially, it’s not enough to be right once. It’s not enough to know when the market will plummet. You have to know when it will recover, and what will happen after that. And after that. And while everyone can be right sooner or later about something, no one is right all the time.
Forecasting may be useful as a barometer to gauge current conditions, but the folly of basing your investment strategy on prediction is that, in order for it to work, your predictions have to be right all the time, into perpetuity. In a world of unknown outcomes, that just isn’t likely.
Prediction vs. Preparation
Our approach focuses on preparation as the realistic alternative to prediction. Where prediction hinges on being right all the time, preparation hinges on setting the right expectations. We expect uncertainty in the short term, and we bake that into our planning with you. Instead of taking on the futile and resource-wasting task of continually trying to stay one step ahead of every market fluctuation, we create portfolios that are durable enough to weather a variety of market environments.
Financial strategies rooted in prediction keep investors in a never-ending loop of trying to guess outcomes in advance. But preparation brings the peace of mind of relying on a stable process that plans for the long term based on close to 100 years of empirical data that supports the ultimate advance of equity markets over time.
Successful Investing with Purposeful Planning
There’s one other thing to keep in mind about predictions: Even when, as luck would have it, they are right, they only tell you what’s going to happen – not what to do about it. Predictions guess at outcomes; they don’t give actionable advice on how to navigate those outcomes toward a more secure future based on sound financial strategy. That’s what we do.
At N1 Advisors, the advice we provide in crafting and following a plan specific to your needs and goals doesn’t depend on the variable accuracy of forecasts. Instead, it draws on nearly a century of objective data to create a purposeful plan designed to progress you toward the long-term financial freedom you seek to enjoy for yourself and to leave as a legacy.
We help clients chart their financial futures using reasonable forward-looking assumptions that don’t depend on what will happen the next day, the next quarter, or even the next year. Your goals are bigger than that, so our planning has to be, too. Our pledge to you is to lean on real and objective data, set reasonable expectations, and stay the course with you so your financial independence is built on the solid ground of preparation – not the shifting sands of prediction.