“Don’t think of it in terms of how much it will grow in value,” he said. “You won’t see the growth of the past 20 or 30 years. It’s not an investment. It’s a lifestyle choice.”
I found a house I liked and bought it anyway. I remember worrying that I had overpaid but I was looking for a place to live more than a big return. Interestingly, my friend also found a good deal and purchased a home a year or two later.
Of course, our lifestyle choices turned out to be very good investments, contrary to both our expectations. The average price of a home in Canada has more than doubled in the past dozen years and some neighbourhoods in Ottawa have done even better than that.
None of this is to say my friend wasn’t wise or knowledgeable. Rather, it demonstrates that even people with expertise aren’t infallible when it comes to predicting the future. So although newspapers, magazines and talk shows are populated this week with all kinds of prognostications, nobody really knows what’s going to happen in the next 12 months or beyond.
When predictions are about sports or politics or consumer trends, they are often in good fun and not a lot is riding on the outcome (unless you bet your house on the outcome of the Super Bowl). But many of the forecasts are about important factors that will impact the personal financial decisions of readers and viewers: Double-Digit Gains on the Market This Year! Top 10 Stock Picks for 2014! Housing Bubble Will Burst as Mortgage Rates Will Rise!
A broad forecast about economic trends and factors can be interesting and thought-provoking. But some of the predictions, invariably from people with credentials and expertise, stop just short of imploring readers and viewers to act on the speculation. After all, what’s the point of writing about top stock picks if you aren’t suggesting the reader should consider buying some of them?
Although they are timed to the new year, these prognostications aren’t much different from the regular supply of market predictions and other prophecies available in the daily financial media, which is often consumed with trying to forecast the future. But to what extent can these predictions be relied upon as anything more than just guessing
There is at least one housing expert who has been predicting a 25-per-cent drop in the Canadian housing market for three years. I suppose if you keep predicting something often enough, eventually it might happen. I have a pessimistic relative who often throws out relatively vague predictions of doom and gloom that are later confirmed by carefully selected news events. That hardly makes her clairvoyant. And how useful is an open-ended prediction in an arena where timing is crucial?
In our time, we expect any bad event to be prevented or at least a warning to be issued in advance. We demand accurate weather forecasts, and even receive them sometimes. So why shouldn’t we also expect reliable predictions about which stocks we should buy or when is the right time to buy a house?
The financial columns and TV segments overlook the fact that there are so many factors that dictate the performance of everything from mutual funds to housing prices that it’s impossible for anyone to be consistently accurate at forecasting activity. Unless, that is, they’re just lucky (as I was when I bought my house).
And if nobody can predict with any certainty how the Dow Jones is going to perform on any given day, how can they forecast a trend for an entire year?
Whether you’re planning to buy a new home, renegotiate your mortgage or put more money into stocks or mutual funds, it’s better to focus on making solid long-term decisions rather than try to time the market based on some short-term prediction. Even if you buy a new home and it doesn’t quickly rise in value, you still have a place to live.
More importantly, once you’ve made the investment, don’t worry about short-term ups and downs or second-guessing your decision if it doesn’t prove immediately worthwhile. Some people track stock prices and housing values daily but there really isn’t much point to reviewing the value of your assets more than a few times a year.
It may be fun to guess about the future but not even the greatest experts can predict it reliably or consistently. So, like the Super Bowl, it’s not worth gambling any significant amount of money on guesswork. The only safe prediction for 2014 is that most of the predictions will be wrong.
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