Year-end in the investment and financial services business is traditionally the proverbial “forecasting season” in which many firms issue their fearless prognostications for the forthcoming year relating to such things as financial market returns, interest rates, the economy, Federal Reserve policy, etc. In truth, it is important stuff: having the best, or at least, better vision into the future is certainly a huge advantage in investing. The problem with the “forecasting” business is no one can forecast the future precisely; if we could we wouldn’t be — well, you know how the rest of it goes.
History shows that pundits and forecasters you read about or see on TV are right about half of the time, the equivalent of a coin toss. So are their forecasts worthless? Not necessarily.
The pundits can provide ideas, data and food for thought that can be helpful in formulating investment strategy. Having an investment strategy based on fundamental analysis is part of our due diligence in managing client assets. In an environment of uncertainty, we do this primarily through deriving probabilistic assessments of the factors that will impact future market and portfolio performance.
In short, as of now, our best probabilistic assessments for the economy and stock market in 2020 remain positive.
Importantly, in an environment of uncertainty where we know things will happen that we cannot currently forecast, there are always actions we can take to enhance our probability for financial success. Think of it as “finding strawberries” in a roughed up and messy garden, “strawberries” meaning positive things that are tangible in an environment of uncertainty. Here are six strawberries we see for 2020.
The economy should again be strong in 2020. This is based on strong employment and good probability for robust consumer spending and stronger capital spending.
Good probability for improving corporate profits which are the underpinning of stock prices.
Good probability that global central banks will remain accommodative. This implies healthy liquidity to the financial system and is a positive for valuations of financial assets.
The ability to be proactive in positioning oneself better financially for 2020. This includes such things as improved spending and budget discipline, establishing a more disciplined savings program, reducing debt, tax planning, and/or maxing out tax qualified savings plans such as IRAs and 401Ks.
The ability to take steps to improve one’s financial future through implementing a comprehensive financial plan that focuses on long-term financial goals and improving one’s financial health and readiness for retirement.
Being proactive in managing portfolio risk through appropriate asset allocation, asset class diversification and adhering to a disciplined financial plan.
Bob Toomey, CFA/CFP, is vice president of research at S.R. Schill & Associates on Mercer Island.