Predictions are a fools game

Welcome to 2021.

Hopefully, a year where we can return to some sort of normality but equally several question marks remain.

It is the time of year where newspapers and tv press are wheeling out experts to give their financial predictions for the year ahead.

How many of these experts were right in 2020? I am willing to guess its between zero and none. Short term market predictions and stories remain disposable page fillers.

A look back over the top 20 stocks on the Australian Share market makes for interesting reading and reiterates some important lessons.

Firstly: If I had sat you down on January 1st 2020 and described what would happen in the following year – bushfires continuing, a global shutdown of the economy, empty sports stadiums – would you expect any of the above to be Green, let alone 12 out of the 20?

Overall, the ASX300 made a total return (including dividends) of +1.73%. Global stocks made even more.

Secondly, could anyone pick the winners from that list even if we had a ‘normal’ year?

Highly unlikely and if we could find such an expert, why would they share their secrets and run an investment fund for us? As the amount of information available to the markets and investors has grown over the last 20 or 30 years, with company accounts freely available online, tighter regulation on insider knowledge and trading, the days of a stock picker getting an edge have gone.

Therefore, we continue to structure your valuable family wealth to gain their exposure to each share market across the globe via low cost index funds. These funds purchase every share on the market in proportion, rather than speculating on a small selection.

It’s cheaper, more diversified and has been shown to beat the majority of the competition.

It is our behavior as investors, that will continue to be the biggest influence on your returns. Each of you has shown by not panicking in 2020, you can do this.