The Future is (Always) Cloudy - Old Peak Finance

The Future is (Always) Cloudy

May 29, 2015

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The Future is (Always) Cloudy

May 29, 2015

Not convinced it’s futile to try predicting the future in investing? Have I got the evidence.

On Jan 1, 2014, no one — repeat, no one — would have predicted that long-term government bonds would be 2014’s best investment. Interest rates were at all-time lows. Everyone was sure interest rates would rise. When rates rise, bond prices go down. And the prices of long-term bonds go down the most. On Jan 1, 2014, anyone owning long-term government bonds looked like a deer in the headlights of an on-coming 18-wheeler doing 70.

Yet in 2014, long-term government bonds returned 24%. That’s almost double US stocks and 24 percentage points more than what you earned in cash.

The lesson is definitely not to buy a lot of long-term government bonds today. Rather, the take-away is: because it’s virtually impossible to predict what investment will do well in any given year, you should diversify broadly. Our typical client owns over 10,000 stocks and bonds from around the world, using a limited number of low-fee mutual funds.

Avoid the sooth-saying. Maybe you’ll guess right one year. But long-term, the odds of success are so much better with a diversified mix.

This article is not intended to provide tax, legal, accounting, financial, or professional advice. Readers should seek advice from qualified professionals who can review their specific circumstances. Old Peak Finance endeavors to provide information that is accurate and current. However, we cannot guarantee that this information has not been outdated or otherwise rendered incorrect by new research, legislation, or other changes. Old Peak Finance has no liability or responsibility to any individual or entity with respect to losses or damages caused or alleged to be caused, directly or indirectly, by the information contained on this website.

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