Chicken Little or Rose-Colored Glasses?

By Robert Fezza and Steve Siders

August 21st marked the longest-running S&P 500 rally, followed in mid-September, by the ten-year anniversary of the 2008 financial crisis. Tariffs and trade war threats remain wild cards in the financial deck. A Brexit looms nearer and scarier. Emerging markets struggle while global leaders squabble. And, historically, many of the worst days in the markets have arrived in the fall.

When it comes to market forecasts, will the sky be falling soon, or are we set to soar some more? Here are three compelling reasons to avoid trying to time the market in this manner.

1. Markets (Still) Aren’t Predictable
Before you decide you’d like to stay one step ahead of a market that seems certain to rise, fall or head sideways, consider this quote from The Wall Street Journal personal finance columnist Jason Zweig (8/21/18): “Yes, 2018 is full of uncertainty and teeming with hazards that might make the stock market crash. So was 2017. So were 2016, 2015, 2014 – and every year since stockbrokers first gathered in New York in the early 1790s.” The most dangerous words in finance are, “it’s different this time.”

2. Economists Aren’t Wizards
A day rarely goes by when you can’t find one respected economist suggest we’re headed for a financial fall, while another opines that we’re going to keep going like gangbusters. Which is it this time? Market volatility and gaps in international and financial data make it difficult for economist to accurately forecast economic growth and recessions. Queen Elizabeth II illustrated this point when she asked an economist at the height of the 2008 financial crisis, “Why did nobody notice it?”

3. You Can’t Depend on Your Instincts
Still thinking of trying to sell ahead of a fall? For this, and any other investment “hunch” you may have, your best bet is to assume it’s a bad bet, driven by your behavioral biases instead of rational reasoning. For example, loss aversion can trick you into letting the potential for future market losses frighten you away from the likelihood of long-term returns. Couple that with investors’ oversized bias for seeing predictive patterns, even where none exist, and it’s all too easy to talk yourself right out of any carefully laid plans you’ve established for your wealth.
For these reasons and more, we’re here to advise you: Your financial plan doesn’t eliminate uncertainty. It counters the temptation to succumb to it. As financial author Tim Maurer likes to say, “personal finance is more personal than it is finance.” We couldn’t agree with him more. Life is a journey, navigate it wisely. ❍