What Investors Should Expect in 2019 - 5 Predictions
Hey ro, Happy. New Year to you too at. The time of taping this. Things. In the world I would say are a bit unstable, the markets are unstable, the, economy, is I, don't know does anyone ever really know that's. That is a good point does anyone ever period, I should have just yes does anyone ever really know not. Rhetorical, rhetorical, but here's the problem, much. Of investing, in financial planning does. Rely on a little. Bit of knowledge in fact a little bit of foreknowledge in fact you have to make basically, a prediction, when you're buying one stock versus, the thousands of others you are predicting that that is going to be the better investment if. You're deciding to put a little bit more in international, or US, stocks you're trying to make a prediction of which is gonna be the better bet, the. Whole point of retirement. Planning is doing. Something so that when. That time comes 10, 20 30 years from now you're, gonna have enough money so you have to make some predictions. There's. A problem and that is. Humans. Kind of stink at predictions. And. I find it kind of interesting I'm a bit of a collector of predictions I even have a folder, in my Evernote, because, partially. I want to see who's particularly, good at predictions, partially, because when people make predictions, they have some interesting points to make and supporting. The predictions. But. The bottom line is generally. People aren't very good at it one of my favorite, examples I think I've used on the show before was. One, of those end-of-the-year, articles. In Business. Week was the end of 2007. They, asked six highly. Paid finally, attired Wall Street types how, they thought the Dow would end in 2008. Now at the point the. Dow was a little over 13,000. Every single one of these people expected, the Dow go to go up about an average to 15,000. What. Happened in 2008, not good not good it dropped to about 8,000, so a 40%, drop worst year for the stock market since, the Great Depression and it's. One of those glaring examples of how you have people, who. Have all, the, resources that you supposedly could ask for, to. Make these predictions and they, all got it wrong and, they're, plenty studies that have looked over bigger. Periods of time, one. Is, under. Study that was done by cxo, advisory, they called it their guru grades so what they did from 2005. To 2012. They collected. 6000. 582. Forecasts.
About The US stock market from, 68, experts, you. Know they didn't even just look at the, predictions from that time period they went back to their archive so the oldest, prediction. Went back as far as 1998. What. Was the average guru. Accuracy. 47s, actually what they call it guru accuracy. Guru accuracy. 47.4%. Wow a. Coin flip a little. Worse than, the. Most accurate person, was right 68%. Of okay so still wrong, one, out of every three times. Worse. By the way with an accuracy rate of 20%. Yet. This person still, has a money management firm and still is in the media making predictions. It's, quite it's quite remarkable, so. Once. Again we're here at the end of the year you are probably reading all kinds of articles about, what. 2019. Is like I always. Like to take this opportunity to look back at some of the predictions from 2018. To. See what happened and there were a few that jumped out at me a couple that were highlighted, in an article on market watch by Shawn lang Louis I don't know if I got his name right there highlighted. Two people in particular one, is Ray. Dalio he, is considered. One, of the greatest investors, of all time we talked, about that in a previous, episode runs the biggest hedge fund in the world world. And. At that time of the year he said investors are quote going to feel pretty stupid if they sit around in cash in 2018. He expected, a pretty, big rally partially. Because of the jolt coming to the economy from the tax cuts of. Course as we sit here we are recording this before the end of the year but, as we sit right now the stock market is down for the year now. He he, is his fund, itself has actually made money this year, but. Again, another really, smart, guy, thinking. Things are gonna be pretty good this year for the stock market it didn't turn out that way another is Bill Miller who. Was. Famous for beating the S&P 500, 15. Years in, a row. Unheard. Of. Heard of he got undone, with. The Great Recession and, that his, performance tanked. Considerably. Like horribly, you're covered a little bit and his record has been mixed since then he. Predicted, at the beginning of 2018. That. We'd have another year like 2013. Which. Is when the stock market went up 30%. Didn't. Turn out that way now. Some folks did think it things partially, right like Jeff gundlach who's considered, sort of the bond King he co-founded, double. Aligned capital. That's. One of the biggest bond, funds out there very, smart fellow, predicted. That stocks would go up at the beginning of the year and then and the. Year down which was right he. Predicted that Bitcoin, had peaked he was right he. Also predicted that one of the best things to invest in for 2018, it would be commodities, he. Was wrong, commodities, actually have performed worse, than. Stocks, so, far this year, so. You can get some things right maybe. Not everything right and that's part of just invested you're just not gonna get it all right, so. Recently CNBC, is Thomas Frank Dobson article which reviewed the predictions of 13 of the biggest firms on Wall Street what, they were saying for 2018, what they're predicting for 2019. And the most accurate for last year was also the most bearish that was Morgan Stanley's Michael Wilson he basically predicted. That the S&P 500 would make just a little bit of money actually. It lost money but he was still the most accurate so.
You Might ask what are these people expecting, for 2019, while he is also again, the. Most bearish he doesn't think the S&P 500 will actually make much money at all in 2019. On, average, these folks think, that the market will earn about 15% in, 2019. Oh, that's. Not bad it's not bad so they are predicting, that we are currently in the longest bull. Market in history they're, predicting that we have another, year left of it will. It matter I, think. We've already established we, don't. Think that they'd anyone, can really predict, that what, I thought was most interesting, what I think is most worth paying attention to is a little. Bit more pessimism. Has, crept in to these prediction. These sort of articles and these every, firm off often will put out some Outlook. Report and whatever they see happening in the year ahead. It's much more pessimism, in them. This year for, a couple of reasons, that I think are pretty. Valid, number. One the, Fed is, still. Raising rates, probably. Will slow down not raise them as much in 2019, as people expected but. Still probably, rates are going to go up that's usually it. Does the whole intention is to slow down the economy to keep inflation in check and, that's probably what will happen a couple, of other interesting, things that are generally. Indicators. Of a slowing economy if, not, recession, indicators, one of them being the inverted, yield curve are, you familiar with this at all oh it's my favorite. Favorite. Thing, anyway so generally. Way. To go every time, except. That, the yield Kerman yield, curve is inverted, every time before. A recession, so, it's tonight's bad. It's, a bad sign it's my favorite bad sign it's really late so basically, you should get paid more to. Buy a bond with a longer duration than a short duration you should get paid more to. Buy a ten-year bond than, a two-year bond because they're tying up your money for a longer married time period of time that's, a normal year yield, curve it goes up and to the right okay.
But Sometimes the. Yield curve becomes flat, meaning you don't really get paid much more to go out further, and. Sometimes. You actually get paid more for a shorter term Treasury. Or a bond usually it's looking at Treasuries and that briefly, has just started to happen so. Currently, you actually get paid more to. Invest in a 2-year Treasury than you do or a 3 or 5 year Treasury that's. Generally, not a. Good sign what. People most look at though is either the difference between the three-month, Treasury. In the 10-year or the 2-year Treasury in the 10-year that's, still slightly positive, but. It's unquestionably, a sign that things, are slowing down there have been some false, signals. With an inverted yield curve but. Every recession, in modern, times has either been preceded. By an inverted. Yield curve or, it happened right around the same time another. Interesting, thing that I read in a report, from Schwab. Was. That another indication, of a slow economy is when the, unemployment rate in the inflation right get. To be very similar so. After. A recession unemployment. Unemployment. Rate, is high, because. People have lost their jobs an inflation, rate is low because businesses had to cut their prices to get people to buy stuff as. The economy recovers though the. Unemployment rate drops. Inflation. Rate ticks up and. When they get to a point where, they're very close, that's usually, not a, great sign yeah and the, difference between the two now is only about one one and a half percent so. It's certain things like that in another signal that I think is interesting now is it household. Ownership, of stocks is near. An all term out an all-time high really. Yep so we're about at the same amount, as. 2007. Right before the Great Recession and we're only slightly, behind where we were right, before the dot-com crash the, reason it's a bearish, signal is because, basically. Households. Have put in as much as they can in the stock market, they, don't have as much on the sidelines, to, put into the stock market, doesn't. Mean the market is going to crash tomorrow doesn't, even mean it's gonna crash in a year or two but, it's a sign that people are highlighting, as things like you know what it might be time to be a little bit more cautious, a little bit more defensive. So. All that said, given. That we don't really, know. What's going to happen but there are some certain signs on the horizon. Here. Are some predictions, that, I'm mostly, sure I'll be right about. Man. Number. One is. You. Have to make a prediction so, regardless. Of whether. You're going to be accurate you have to make some predictions and one that comes to retirement, planning one. Of the key predictions you have to make is what is Mike's portfolio. Going to earn, generally. Speaking, most. People expect, below-average returns, I particularly. Like vanguards, like, annual. Market outlook and, their.
Guidance, For a globally. Diversified, portfolio. For stocks. Over. The next decade earn on average four and a half to six and a half percent a year I think that's a reasonable, assumption hopefully. It'll be do better, but it's better to assume something like that, for. Current. Interest rates always the best indicator of future returns at least for the next 5-10 years right. Now so that's about 3% but. There's something a little different going on in the bond market now. If. You want your bonds, to be particularly, safe you want them to make money. When. The stock market goes down you, should stick with Treasuries, the. More you go into corporate bonds, the. More you're taking on a risk and they might not hold up quite as well so for example during. 2008, when the stock market dropped 37%. The. Vanguard, intermediate term corporate, bond fund lost about 7 percent so, not horrible, but you lost money but. There's some evidence that corporate. Bonds are actually even riskier, now than, they were then, and that, is because, the. Bond market is broken up into basically two big segments, investment. Grade that, means they're rated BBB, or above by Moody's and S&P and Fitch in those folks, B. Being a B and above is investment grade below, that is speculative, grade called, junk. 15-20. Years ago when you looked at the whole investment, grade market, maybe. 25, to 30 percent of it was BBB. Basically, a notch above junk. Today. Half, the investment, grade market is just, a hair away from junk really so the corporate bond market nowadays, is riskier. Then. It's been in the last 10 15 20 years so. As you look at your portfolio if you're choosing to invest in bonds or bond funds you. Have to take that into account take. A look at how much exposure you have to, the bond the carbon bonds what's if you look at a bond fund you can look at Morningstar, and see it's average credit quality. If. Its BBB. Close. To that you've, got a pretty risky bond fund and you just have to be prepared that probably will go down if we do if and when we do go into a full recession, you better beware right, I. Need another B in there there you go that, was good that wasn't and, as we're cash we've talked about before these. Days you should be able to earn 2% you just gonna put in a little effort so, put. That all together if, you have a portfolio, of, cash. Bonds. And stocks, you. Should only assume you're gonna be earning you. Know 4 to 5 or 6% a year, as you, do your retirement plan contributions or, it could be also if, you're calculating whether you're saving enough for a college, or something like that so. I think that's a reasonable expectation. Number. Two prediction. Saving. More increases, your chances of success, okay now that's not very exciting. Controversial. Hot tape. But. The bottom line is there's. Nothing, that will help you through. A recession or economic, downturn than having more cash in the bank or more in your portfolio, and the good news is we talked about before in. 2019. Retirement. Account, country should limits go up 19,000. For 401ks, with another six thousand if you're 50 or older IRAs. Go up to 6,000, with another 1000, so take. Advantage of those higher contribution, limits and save more number, three your. Tax bill or your refund will, be very different than the previous year so this was the first year, of the new tax law. If. You didn't change anything you're gonna get a bigger. Refund, chances. Are though, there is a good ten to fifteen percent of people, they. Actually gonna have a higher tax bill and they're, either gonna get a smaller refund, or they're gonna owe some, money so. This, is particularly, important. This year I think to get your taxes, done early, to know your situation if you're getting a refund get that money as soon as you can if you owe money you.
Don't Have to file your taxes, then you're, gonna wait until April 15th but you're gonna start building on that money so you have that cash on hand but, it's also important, to know ok this is the tax situation taxes. Are not going to change very much in 2019. Unless, you do something different so. It's better to start earlier in the year to adjust your withholding, so. If you're gonna get a refund you get that money sooner, or if, you're gonna owe money you. Want to make sure you adjust your withholding, because if you owe too much you'll have to pay some, sort of penalty. Number. For another. Boring one paying. Down debt is a guaranteed, winner with. Interest rates going up debt is more expensive credit. Card the interest rate on credit cards are at all-time highs now it's, time. High like what like 17, or 18 percent for a reg their card but, then when you get into like the store cards it's like 25% ease, but, the same it's also say mortgage, rates have gone up auto. Loan, rates have gone up. So. It's better to, pay that off it's a guaranteed, winner. It, also gives you more flexibility. One of the issues what. Happens with it during recession, is if you're retired your portfolio goes down or if you're working you might lose your job the. Less debt you have the. More you could weather that type of storm if you're retired. Your. Portfolio, and your portfolio goes down one. Of the best things you could do is, just leave your portfolio, alone and if, you don't have a lot of debt you have a lot more flexibility, with your budget if, on the other hand you, have a credit card bill a car bill and a mortgage, your. Portfolio's down you. Can't hold. Off you have to pay those bills in the priority of credit, card. Car. Mortgages. Right exactly. And. Number, five. You're. Always better off looking for ways between, enhance your human capital that is basically, your. Value, to your customers, and everyone. Has a customer, obviously if you're self-employed you have customers, but even if you work for somebody you. Have customers, your boss people. Run the company your colleagues, I think. It's important to always be looking for ways to, show that you are valuable, to the people who are your customers because. What happens during a recession number. One people either get laid off or people, you don't people aren't just employers, aren't as generous with raises the. More value, you can demonstrate to the people you work with or the people who are your customers more. Likely you're gonna be better off what are you intending to do to improve your human capital in 2019. Yes. No, I. So. I actually have begun a few, discussions. With people about how, I can increase the engagement on. The. Services, I work on the full particularly, the rural retirement, service, so. I've got a few meetings about that I have another meeting on Friday like what are the things we can do to, make it more valuable to the people who subscribe, oh. I'm. Glad you had an answer. Not. So. When you were looking at all these prognosticators. Were. There. Many. That were kind of like a broken. Clock is twice, Right twice a day kind of thing where it's like I'm the perma bear I'm the one who always thinks the markets gonna crack there's. No question so one. Guy is John, Hussman who. I enjoy. Reading super. Super smart guy became. Famous by being very bearish before the great recession of course market. Did drop so he was right. Here's, generally. Not always but generally been very, bearish, since then and has not gone what's, been tough it's been a tough ten years or a bear yeah so in November. He. Predicted, that the sp500. During. The next downturn is gonna drop to. Below 1000, keep, in mind that right now it's about 2600, so he's talking for, more than half right right. So, I don't. Know if that's gonna be right yeah. But. There are those people and there are people who, still. Think inflation, is gonna go nuts so I read a few prediction of where people think gold is gonna go to $5,000. An ounce or something like right now it's 1,300. Oh but they have been saying that since. The Great Recession because, as you may remember with, all the stimulus, from the Fed they were saying it's going to spark outrageous, inflation, and the.
Best Place to be was his, gold and extra gold since. 2011, is down I don't, know 50, percent no something, like that, so. You certainly come across that and I think it's a that. Is an important, distinction, as you read, these things but, even though John Hussman right I got it he's obviously been wrong. But. So much of his analysis, is so enlightening. Because it brings so much. Market. History so, even if someone doesn't, get the bottom, line right you can still learn a good bit from. Reading their analysis, because, in the end, you. Have to make some, sorta prediction and in in, my in your mind. There. Has to be that little, bit of possibility, like well what if he's, right what. If the, market goes down and, we did have the great at, one point we, did have the Great Depression where. Stocks went down 80% there. Has to be that part, in your mind but that that, could happen and have some, portion. Of your portfolio that. Will do at least okay, in that scenario. Yay. 2019. It's. Gonna be a great year it. Is going to be a great year it is gonna be a great year even if it's not a great year because. We're, all here together we've got each other something, like that because I love you guys everybody, knows. That's. So, great Sagar. You.