Introduction

Top 10 Predictions for 2016By Anthony Warr

Top 10 Predictions for 2016 By Anthony Warr

New Year is a customary time to speculate. In a digital age, when past forecasts are online, market and media professionals find it hard to hide when their financial predictions go awry.

A recent newspaper article highlighted many bad calls US economists had made about 2015. These included getting the timing of the Federal Reserve’s interest rate increase wrong, incorrectly calling for a rise in long-term bond yields and assuming an end to the commodity rout.¹

Australian economists were a little better. A January 2015 Fairfax Media poll found the consensus view was that local official interest rates would stay on hold all year. The Reserve Bank of Australia proved that wrong a month later, before cutting rates again in May.  Their average forecast for the Australian dollar by year end was around US77c. On the last day of 2015, the currency was less than US73c.

It shouldn’t be a surprise that if economists can’t get the broad variables right, it must be tough for stock analysts to pick winners. In the article “Top Picks for 2015” published by one media outlet a year ago were such names as Woodside Petroleum, BHP Billiton, Origin Energy and Slater & Gordon, all of which suffered double-digit losses in the past year.²

It should be evident by now that setting your investment course based on someone’s stock picks or economic forecasts is not a viable way of building wealth in the long term.

Of course, this doesn’t stop you or anyone else having or expressing an opinion about what might happen in the economy and markets. The danger is when you base your investment strategy on an opinion.

So the better option, with the help of an advisor, is to set an asset allocation that matches your own risk appetite, goals and circumstances.

In the meantime, here is a list of 10 predictions you can count on in 2016:

1. Markets will go up some of the time and down some of the time.

2. There will be unexpected news. Some of this will move prices.

3. Acres of newsprint will be devoted to the likely path of interest rates.

4. Acres more will speculate on China’s growth outlook.

5. TV pundits will frequently and loudly debate short-term market direction.

6. Some economies will strengthen. Others will weaken. These change year to year.

7. Some companies will prosper. Others will falter. These change year to year.

8. Parts of your portfolio will do better than other parts. We don’t know which.

9. A new book will say the rules no longer work and everything has changed.

10. Another new book will say nothing has really changed and the old rules still apply.

The future is always uncertain. There are always unexpected events. Some will turn out worse than you expect; others will turn out better. The only sustainable approach to that uncertainty is to focus on what you can control.

Happy New Year to you all!

——————————————————————————————————————————————

¹ Malcolm Maiden, “The Year Market Economists Failed to See Coming,” SMH, 30 Dec 2015
² “Top Stock Picks for 2015”,Motley Fool