As the end of the year approaches yet again, you might be reflecting on how things have changed over the past 12 months. Many unexpected world events have happened lately, including a global pandemic, war in Ukraine, and inflation taking over.
Well composed articles about the future can be entertaining, but little more. However educated the guesses in these articles may be, they are still just still guesses that are subject to random and unpredictable events. Recent history has proved that repeatedly.
In the finance world, major world events have impacts on money movements. Analysts are often asked at the end of each year their forecasts for the next year and for over a decade now I have casually tracked how their predications have panned out (author note – I track my forecasts also and don’t have any superior success rate). Let’s have a look at how the 2022 predictions stacked up against the realities.
Beginning with important economic and market variables for 2022, here’s what Australian economists thought, and how it panned out:
Two thirds of economists surveyed thought the cash rate would remain near 0, until at least 2023. Some even went a little further and said “no rate hikes until 2024” (which is pretty much what the Reserve Bank of Australia said). As we all know, this was not the case, and rates began to rise in May 2022. For 8 months in a row, the RBA has raised cash rates, now sitting at 3.1% today.
It didn’t stop there. Perhaps reflecting their bad call on cash rates, the economists’ panel was convinced that underlying inflation, the measure targeted by the Reserve Bank, would remain below 3% in 2022.
As it turned out, however, inflation spiked rapidly and kept on rising. By September inflation was above 6% in underlying terms, twice as high as the economists’ year-end target.
Forecasts for Australian and International equities were just as far off target, with most predicting a modest increase for Calendar Year 2022.
I don’t do this to disparage the skills or professional standing of economists or financial analysts. Many are highly respected in the field. But they would be the first to admit there is little science in forecasting financial markets or economies with any precision.
The good news is you don’t need the powers of prediction to have a good investment experience. You just need a financial plan that is made specifically for you and your goals.
Over the long term, Australian and International share markets have delivered a reasonable rate of return, but it is not the same every year. Some years are much worse, some years are much better. So to get that average you need to stick with it in good times and bad.
Humanity faces some challenges, it is true. But the flipside of challenge is opportunity and the chance to create innovative solutions to the problems we face. Being a long-term investor gives you the chance to share in the wealth created by innovation.
And you can do all of that without making a forecast.
