If we all were able to know where the market was going to trade, we’d all be rich. But that’s not possible, not even with the best of inside information.
The market, the economy – it’s all a very complicated machine with lots of inputs and outputs that make predictions and short-term forecasts a fool’s errand.
In this post, we take a look at several recent predictions from so-called “experts” and understand why they ultimately shouldn’t matter to you as a long-term investor.
Recessions are a fact of life for investors. We just don’t know when they’ll occur. The best approach, in my opinion, is to be prepared at all times. You can do that by paying close attention to your portfolio’s asset allocation.
Suppose you depend on your portfolio for withdrawals of $50,000 per year. I would recommend holding at least $250,000 in some combination of cash and conservative bonds.
This portfolio design can help you sleep at night. If you know that a recession could occur at any time, but you also know that you’re well positioned to weather it, you need not worry—and need not react—when a recession does strike.
The next obvious question: Are corporate profits guaranteed to rise over time? Again, there are no guarantees, but there are reasons to expect that’ll be the case. The most basic building block is population growth.
Another reason we should expect corporate profits to rise: innovation. Consider a company like Microsoft. Last year, it brought in more than $60 billion from cloud-based software—a business that barely existed 20 years ago.
A related concept is productivity. Corporate profits grow because companies, on average, become more efficient each year. Even if sales don’t rise, a company could still see its bottom line increase.