At Servant Solutions, our Church 403b Retirement Plan has provided quality investment choices for a number of years. Our firm belief? That carefully diversified investments and consistent saving habits are key ingredients to building adequate assets for retirement. This is especially true as we ride the rollercoaster of large percentage swings in the market. Amidst the chaos, many prognosticators are making predictions and forecasts. But how do we view them through an accurate, healthy lens?
We All Crave Security (Even Perceived)
Why are market forecasts so alluring to investors? Particularly when there’s reliable evidence that confirms market forecasts are only accurate 50% of the time? Would you trust a doctor who’s diagnosis was only correct 50% of the time? Likely not.
I’m a huge basketball fan, and there are stats in the sport that surprise me. Many people forget just how bad Wilt “The Stilt” Chamberlain was at free-throw shooting due to his overall dominance. It’s astonishing to think the same man who scored 100 points in a single game is one who ended his career with a 51.1 percent FT shooting percentage. Would I base my next financial decision on the chance that Wilt, even if he averaged over 30 points per game for his career, would make his next free throw? No way. So why are we still mesmerized by forecasts?
Humans find a great deal of security and happiness in the ability to plan. When we don’t know what the future holds, we really can’t plan with any certainty. So, we subconsciously latch on to forecasts, especially confident ones that confirm what our preconceived thoughts have planted in our brains. This thinking doesn’t improve accuracy, only the perception of accuracy.
What’s Truly Predictable
I love to read Mickey Kim’s articles in the Indianapolis Business Journal. He’s been imparting market forecasts for years, and in his words, “They have an accuracy rate of close to 100%.” I’m in complete agreement. Here they are:
The economy/market will do something that surprises us.
Investors who watch the market often will experience more stress and greater unhappiness than those who don’t.
No one will be able to predict what will happen, but it will all seem obvious in hindsight.
You will be tempted to abandon your plan at some point based on expert forecasts and/or short-term market performance.
Investors that focus on those things they can control (i.e. their reaction to volatility) will have a better investment experience than those that focus on what they can’t control or predict (i.e. the sources of volatility).
Investors who abandon their plan to chase a “winning investment” will have lower long-term returns than investors who stick to their plan.
Volatility has returned with a vengeance in 2020 with the coronavirus impacts and the uncertainties that were already prevalent in the markets. Not only is volatility normal, it is necessary for generating outstanding long-term returns. Warren Buffet says that widespread fear is your friend as an investor, as it serves up bargain purchases.
As we navigate the markets ahead, I would like to leave you with this forecast of my own. I’ve learned the best results go to those who have a strategy that matches their goals and time horizons for needing distributions from their investments. Then, when the inevitable market storms come, they have the discipline to ignore distractions and stick with their strategy no matter what.
Our love for forecasts runs deep, but we’d do well to treat them like we treat Groundhog Day—there’s no harm in acknowledging the ceremony of prediction, and groaning or cheering along lightly. But we do it with the higher understanding that the cycle of seasons is reliable, and a groundhog’s shadow doesn’t have much to do with it.
Servant Solutions is a non-profit 501(c)3 Retirement Plan serving servants of churches, Christian higher education, missionaries, chaplains, and para-church organizations. Our mission is ‘To Improve Financial Security for Servants of the Church’. Please reference our website at servantsolutions.org for helpful resources and contact information.
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