January 8, 2015
Predicting the future returns of markets throughout the world is a fool’s game. Why? What should you do?
Predicting the future returns of markets throughout the world is a fool’s game. Why? What should you do?
There is now way to know what the markets in other confide will do. There is a lot of risk involved if you invest in an individual economy because if it crashes you could loose everything. You should invest in a total stock market index fund to own all the markets in the world so you can lower your risk.
No one can see into the future and tell what is going to happen. The Efficient Market Hypothesis states that stock market efficiency always reflects current and relevant information. You will never legally have information faster than anyone else and be able to trade fast enough to gain an advantage. Occasionally you may get lucky, but the majority of the time you just don’t know what the future holds. If you believe people that tell you they know the future prices then they are a “fool” for telling you that and you are a “fool” for believing them. Rather than try to find the needle in the haystack that will skyrocket, you should invest buy the haystack, or in the entire stock market as cheaply as possible though low cost index funds which own all or most all of the stocks in the market. This can be accomplished through companies like Schwab or Vanguard.
One can not tell what the future will bring. You can get a close estimate of future returns by looking at the long run averages of what you are investing in but that is no guarantee that you will get the same return as what someone got in the past. Many people live by the way of the charts and try to time the market, its foolish of them to think they can predict the future by going off of the past. There are many events that cant be predicted like natural disasters or fraud in a major company or government. The stock market is a roller coaster that you get on and wait for it to get over, you dont jump off randomly and fall to your doom or try and get pack on when its moving, just get on and stay on once you find one that makes you happy.
The answers were well thought out and spot on, gentlemen. Let’s recap what you stated.
(1) Predicting the future of the market requires someone to see what has not happened yet. Ignore people who try.
(2) Anyone can get lucky in predicting the future. That is not skill, but pure chance. Don’t bet your future on luck.
(3) What is known has already been factored into the markets. The efficient market is alive and well. Don’t forget that.
(4) Buy assets that diversify you all over the world in stocks and bonds at the lowest possible cost (no-load index mutual funds).
(5) Rebalance your holdings on occasion when they get out of whack. Otherwise, leave them alone and let the markets do their thing. Awake to the possibilities!