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The world we live in is full of things that change every day. One constant, however, is how bad most people are at predicting the future. Are you the exception?
It’s important to recognize that much of what you believe to be true is a reflection of your personal experiences. Mix in some nostalgia about certain times in the past and you have a recipe for a disconnect from reality.
In 1955, the median inflation adjusted household income in the U.S. was around $29k per year. In 2022 the median inflation adjusted household income in the U.S. was over $68k per year. So, on average inflation adjusted household income more than doubled over the past 67 years.
Despite this, many people look longingly at the 1950’s as being one of the best economic periods in U.S. history. In 1955, if you had predicted that incomes and purchasing power would more than double during the next six decades, few would have believed you.
One reason for this disconnect is that expectations about what constitutes financial happiness have changed over time. In 1955, the average U.S. house had fewer than 1000 square feet. In 2022, the average house had over 2500 square feet.
Predicting recessions, bear markets, and election results are all notoriously difficult. Yet, many individuals walk around predicting these things routinely. Just because the predictions are bad doesn’t mean that the predictions stop.
There are always financial and economic stories that attract your attention. Just because something is interesting, however, doesn’t mean that it’s relevant and useful to your particular situation.
You might carry around intense feelings and beliefs about the markets or the state of the economy, but most of these beliefs originate from your personal experiences. Since your experiences differ from others, it should not be surprising that other people have distinctly different beliefs.
Perhaps you have an implicit feeling that your view of the markets or the economy is the only correct perspective. This can quickly devolve into a self-sustaining feedback loop that can lead you astray.
Financial life in general and investing specifically are intrinsically tied to your feelings and emotions. Your predictions about how future events will impact the markets are directly linked to your emotions.
Decades of market data demonstrate how difficult it is to accurately predict the stock market. Instead of focusing on predicting, try concentrating on making sensible decisions aligned with your specific financial goals.
Your present financial life is basically the culmination of all your financial decisions until now. The choices you make from today forward will make up your financial future. Lean into your financial plan for guidance and avoid trying to guess which way the financial winds might blow.
Related: How’s Your Mental Liquidity?