The new year always brings with it an onslaught of “expert” predictions related to the financial markets and the economy. Such forecasting is notoriously unreliable. At just about any given point in time, one can find a compelling rationale for completely opposite outcomes – even a broken clock is right twice a day.
Of course, forecasts are alluring because our brains seek certainty. The financial media, with their insatiable appetite for more clicks, is quite aware of this. Hence, this type of content is seemingly unlimited.
So how does one go about looking ahead in this vast universe of clickbait prognostication? The answer is to be firmly grounded in enduring principles.
As long-term, goal-focused, plan-driven investors, our philosophy is to invest in broadly diversified portfolios of high quality assets. Knowing that the economy can’t be consistently forecast, nor the financial markets consistently timed, we conclude that disciplined investor behavior is the only practical way to capture the growth of these assets – to wit, riding out the inevitable, frequent, sometimes significant, but historically always temporary declines.
Reinforcing these principles is important from time to time. Much like taking prophylactic vitamin C to avoid catching a cold, we can be vulnerable if we let our guard down. The previous five years provides a good perspective:
- 2020 saw a deadly hundred year pandemic shut down the world economy and cause the S&P 500 to decline 34% in 33 calendar days.
- 2021 saw the markets charge higher fueled by unprecedented amounts of government stimulus being injected into the economy.
- 2022 saw inflation spike to nine percent setting off the fastest and steepest sequence of Fed rate hikes in decades - resulting in a market decline exceeding 25%.
- 2023 and 2024 were both quite favorable for investors despite significant geopolitical conflicts and a Presidential election featuring assassination attempts on the challenger, and a sitting president forced to abandon his reelection campaign on grounds of incapacity.
Despite all of this, investors that stayed the course faired quite well over the last five years – and that is the essential take away from this essay.
We have all had to buckle our seatbelts in the past and will inevitably need to do so again in the future. I commend you for your resiliency and thank you for trusting our firm to help you navigate the journey.
So, what lies ahead for 2025? A year of surprises – just like every other year.