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January is a popular month for media pundits to speculate about investment returns. Here is my unpopular “prediction” for the year ahead: We’ll have an average year for US equities in 2018.
What does average mean? Using history as a guide, that means the equity markets may end the year with a 10% rate of return. We have a 68% chance that this return will be as high as 30% and as low as an 8% loss. (1) That is my boring “prediction,” in sum, for the calendar year 2018.
If you read my prediction for 2017, you would find I said pretty much the same thing. Back in 2017, however, the vast preponderance of the pundits predicted a long-term lower-than-average annual rate of return for equities. Dire. Dismal. Lousy. I was an almost solitary voice of optimism.
So, enough gloating.
Why am I confident that equities will likely continue to deliver returns over long time periods? Same story as last year—where else are you going to go? The asset class formerly known as bonds is overly-traded, leveraged, and complicated. Real estate is not what we do—why bet the house on another house? We barely survived that experiment just 10 years ago. Don’t repeat it, please.
A diverse set of the best companies in the US and the world may continue to outperform other investments over the long haul—so says your investment advisor—and it will also likely lose 15% this year
That’s right, sometime during the next 12 months, I believe the market will fall at least 15%. I just don’t know when. And then, after it falls, it will likely recover, more quickly than almost any of us can act on, and I believe it will likely end the year with average returns.
Let me know what you think. Talk to your financial advisor. Take advantage of the new risk analysis and financial planning software we have here to make sure that you are on the right course for your family, for the long haul.
