A Few Words About “Experts”
We can’t help it! We all crave certainty.
During periods of turmoil and volatility (and thus uncertainty), each of us seeks to understand what’s really going on, and how it relates to our well being.
That’s an innate trait among all fully functioning and responsible adults.
It’s actually a built in defense mechanism hardwired in our brains.
The first question to ponder today during this current period of uncertainty is who do we pay attention to in our attempt to come to some semblance of “understanding”?
As we’ve talked about before, most retirees gravitate to the so-called “experts” the mass media trots out in front of us daily for insights into where we’re going in the future.
Are They Right?
Is this a good idea?
After all, economist and author John Kenneth Galbraith was famous for saying, “the function of economic forecasting is to make astrology look respectable.”
In my opinion, you have to be very careful of “expert” opinion.
Let me give you an example:
Between 1982 and December 2008, the Wall Street Journal surveyed all of the top economists to get predictions of the direction of interest rates in the future.
Now, before we continue, I’d like to magnify the point that they were not asked to predict what interest rates would be in the future. They were simply asked to predict the direction of interest rates in the future, i.e. higher vs. lower.
In 2008, the Wall Street Journal measured the predictions vs. the actual direction of interest rates from 1982 to 2008 and published them in their Survey of Economists.
Here’s what that survey revealed…
Overall, the economists’ forecasts were wrong in 36 of the 53 time periods!
That means they were wrong 68% of the time!
Can you believe that? 2 out of 3 times they were wrong about the “direction” of future interest rates.
They couldn’t even get that right more than half the time.
If they can’t get this right, who can?
So, what can we learn from this?
Simply this: don’t waste time and energy focusing on variables that are unknowable and uncontrollable over the short term (like the direction of interest rates or the stock market).
Instead, focus your energy on things you can control like:
- knowing your income and expense numbers cold,
- calculating the investment rate of return you need to earn to help you keep pace with inflation so you don’t run out of money,
- diversifying your holdings over many different styles of investments, each of which will perform differently during various periods of time,
- remaining disciplined with your carefully determined and planned for allocation during different market cycles, and
- objectively holding each investment accountable to its stated goal, and making adjustments if necessary.
After 22 years of intensely studying and working hands-on with all of you, I can confirm that being on the “cutting edge” of current information (from so-called experts) is no recipe for total financial security and the relaxing retirement you desire.
Continue to focus on what you can control, and just smile the next time you hear some “expert” profoundly state what he or she believes will happen in the future.