Welcome to forecast season

If there’s one thing we can count on every January, it’s financial forecasts for the upcoming year. Whether online, in the business press, on television or on the radio, predictions abound on markets and the economy.

The question is whether you can always trust these media reports. If you hear or read enough predictions, you’re sure to notice conflicting views—and, of course, they can’t all be right.

Reason to be wary

Here are three economic and investment predictions for 2024 made about one year ago, aimed at the Canadian investor audience. All of these came from reputable financial services providers, but none turned out to be correct:

• The risk of a recession is higher than normal.
• The Canadian stock market will unexpectedly outperform the U.S. market this year.
• Bonds may well outperform stocks, so look at overweighting fixed income and underweighting equities.

No one can successfully predict the financial future on a regular basis at any time of year, so there’s no reason to believe the inevitable January forecasts will prove to be reliable.

News versus views

Keeping up with the markets and the economy can be helpful, and listening to forecasts can be interesting. The danger is putting too much stock in financial predictions.

One hazard is psychological. For example, thinking that a recession is imminent can cause distress for a business owner who worries about the prospect of declining revenue. Another concern is financial fallout. What if an investor who hears a forecast predicting an upcoming market correction contributes less to equities and misses out on a market boom?

Short-term market and economic factors should not affect a long-term investment strategy. That strategy is based on your individual goals, risk tolerance and time horizon. The result is a fully diversified portfolio that, combined with regular contributions, aims to meet your financial objectives through a variety of market conditions.