Experts, Predictions, and the Uncertainty of the Stock Market, Ep #257

Did you know that you can pay someone to give you advice on what to bet on? They can look at historical data like rushing and passing yards, touchdowns, and more—but so can we. Honestly, historical data can only tell us so much. If you bet on a game, you are really making a lucky guess. Is it really so different with the stock market? When it comes to predictions—whether for the Super Bowl or the S&P 500—there is a lot of uncertainty. So, let’s break down how predictions are made and whether or not they should guide our investment decisions. [bctt tweet="Predictions are everywhere—whether for the Super Bowl or the stock market. But how reliable are they? In episode 257 of Best in Wealth, we explore the dangers of betting on expert predictions and why diversification is key for your portfolio." username=""] Outline of This Episode [1:13] The Super Bowl: What you can bet on? [2:30] Why are we trusting betting experts? [7:50] Expert predictions for 2025 [11:32] Reviewing predictions from 2024 [18:06] How do we build a portfolio? Expert predictions for 2025 Most of the top analysts—Oppenheimer, Wells Fargo, Deutsche Bank, and others—are bullish, predicting that the S&P 500 will rise in 2025. The consensus seems to suggest that the market will average a 10% return, which has been the long-term norm. Oppenheimer Asset Management stands out with an optimistic prediction of 18.4%, implying that 2025 could be a great year for the market. However, these predictions come with a significant caveat—the stock market, especially the S&P 500, is notoriously volatile. We have seen massive swings in the past, from a 38% drop in 2008 during the Great Recession to a 25% rise in 2024. BCA Research, on the other hand, predicts a 25.8% drop, highlighting just how different expert opinions can be. This stark difference—43% apart between two top analysts—raises an important question: if the experts cannot agree, how reliable are their predictions? It is a reminder that while these predictions may be based on data, the unpredictability of the market remains ever-present. [bctt tweet="Experts predict the future, but how often are they right? In episode 257 of Best in Wealth, we dive into the unpredictability of stock market forecasts and share why building a diversified portfolio is your best bet for long-term success." username=""] Reviewing predictions from 2024 Did the experts hit the mark last year? The S&P 500 went up around 25% (with dividends) and 23.3% without dividends. Oppenheimer, the most bullish of the experts, predicted a modest 8% increase, but the market ended up being nearly three times better than that! Many other firms—Goldman Sachs, BMO, Bank of America—also predicted positive returns, but the actual outcome was far beyond their expectations. In a striking example, some analysts predicted that the S&P 500 would finish the year with negative returns—forecasts that couldn’t have been further from reality. This discrepancy illustrates an important point: even the most well-educated and experienced analysts can be drastically wrong. It shows that predictions are based on what experts know at the time, but they can't account for the countless variables that influence market behavior throughout the year, such as political changes, economic developments, and unforeseen global events. How do financial stewards build a portfolio? The answer is diversification. Family stewards—those who manage wealth and invest for future generations—should focus on creating a well-rounded portfolio that can weather any storm. Rather than betting on predictions, diversify your investments across a wide range of asset classes: large-cap stocks, small-cap stocks, international investments, emerging markets, real estate, and bonds. By spreading your...