Why you should focus on you and ignore market predictions in 2021
At this time of year, news sources are typically full of predictions for the year ahead. Experts gaze into their crystal balls and make forecasts for stock markets, commodity prices, interest rates, and house prices.
We lap up this information because these are the experts. They have all the key data to hand, and we believe they have the authority to let us know what might affect our finances in the year ahead.
What we rarely do, however, is go back and compare these predictions with the reality.
2020 is a great case study. Last January, which experts predicted that the world would slump into its biggest recession for decades on the back of a global health crisis? Which commentators suggested that the price of a barrel of oil would fall below zero? And who forecast that the UK economy would suffer its biggest decline since the Great Frost of 1709?
Even if a strategist had predicted that the S&P 500 might reach record highs, or that the FTSE 100 might fall by more than 14%, the chances are it would have been for the wrong reasons.
A year ago, it might have been reasonable to expect an uncertain year in UK markets. However, it’s likely that Brexit would have been the reason, not Covid-19. Similarly, a thriving US stock market might have been a real possibility in 2020, but probably not because of the performance of tech firms whose products had suddenly become essential because of enforced lockdowns.
For me, the predictions of experts are not something that we should cling on to – indeed, quite the opposite. Many forecasts are little more than guesses based on trends seen in the last couple of months of the previous year!
It can be better for your long-term financial health to drown out the ‘noise’ and just focus on your own goals. The only thing that you can safely predict about 2021 is that it will be full of surprises.
Focus on your own long-term goals, and stay on track
It’s easy to get carried away by the latest big news story. Whether it’s Tesla or Bitcoin, news headlines showcasing the potential investment riches on offer can tempt you.
In behavioural finance, herd mentality refers to investors’ tendency to follow and copy what other investors are doing. By listening to predictions and following experts, you become influenced by emotion and instinct, rather than by your own independent analysis or that of your financial planner.
Personally, I don’t believe you should simply follow the predictions of experts. It’s unlikely you’ll meet your financial goals by investing in Greggs just because someone in the Telegraph suggested that vegan steak bakes are the ‘next big thing.’
Financial planning is all about meeting your goals. Indeed, I recently wrote about how to set achievable financial goals and shared four tips on how you might reach them.
Unless I have an idea of why you’re investing, it’s all but impossible for me to put a plan in place. Investing in pensions, ISAs and the like is a means to achieving your financial goals, not an end in itself.
It’s also worth remembering that planning is rarely about ‘maximising your returns.’ That’s not a goal many clients have.
If you need an annual growth rate of 5% to achieve the life (and lifestyle) you want, and that’s what your plan generates, then you’ve achieved your aims. You don’t have to speculate on cryptocurrency, car parking spaces, barley, or whatever is that week’s investment fad to ensure you can live the life you want.
Regular reviews are vital
Of course, there can be bumps along the way. 2020 showed us that unexpected events can lead to market volatility, evidenced by the FTSE 100 falling by more than 14% over the course of the year.
And it’s not just geopolitical events that cause these bumps. Illness, redundancy, divorce, bereavement, career changes, marriage, and new children or grandchildren can all force you to reassess your plans.
This is where working with a financial planner can add real value. A planner can work with you over the long term to regularly review your plan and to make adjustments as your circumstances change.
A landmark study by the International Longevity Centre (ILC) in 2019 revealed that that fostering an ongoing relationship with a financial adviser leads to better financial outcomes. Clients who reported receiving advice at both time points in the ILC analysis – around a decade apart – had nearly 50% higher average pension wealth than those only advised at the start.
And it’s not just tangible ‘pounds and pence’ value that working with a financial planner can add. In a recent report, Royal London found that people who speak to their financial planner regularly feel more in control of their finances, are more confident, and have greater peace of mind than those who seek one-off advice.
For me, drowning out the ‘noise,’ focusing on your long-term plans, and regularly reviewing the progress towards your goals beats following the latest expert prediction.
Get in touch
To find out more about how I can work with you to help you to reach your goals, please give me a call on 07769 156 250.
Foster Denovo Limited is authorised and regulated by the Financial Conduct Authority.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
