Many “experts” on TV use economic forecasts to tell investors which direction the market is going. Billionaire investor Stanley Druckenmiller says high rates will cause a recession that will depress the stock market for years. Ray Dalio (another billionaire investor) says that it is the war in Ukraine and US-China tensions that could devastate the economy and our investment accounts. There are countless other gloomy forecasts, but they all have one thing in common: these forecasts are merely guesses.
The vast majority of these predictions turn out to be wrong, yet we keep listening to them year after year. We forget that most economists can’t even identify a recession while we’re in one, let alone predict them. Between 1990 and 2012, economists forecasted only 2 of the 60 recessions that occurred worldwide a year in advance. Forecasters’ lack of success comes as no surprise when you consider that there are millions of factors that impact the global economy. Guessing is the best “experts” can do. Besides, the media would rather report these doomsday guesses because drama attracts viewers and viewers generate advertising revenue. Reporting historical facts – such as the strong returns of the stock market over time despite wars, recessions, and pandemics – is less exciting.
Investors are always bracing for the next big risk to our investment accounts. We forget that most risks will not come to pass, and even fewer will affect our long-term returns. Are there sometimes short-term losses? Absolutely. But no one can consistently predict and time these events accurately. The only way not to miss out on all the market’s good days is to stay invested. And staying invested is a lot easier when we take economic forecasts with a grain of salt.