By Tom Bradley
There are times throughout the investment cycle when people want more precision. They want to know what the market is going to do this year, or even this month.
These moments most often come in January when year-end investment reports and media coverage are full of predictions for the next year. The need to know also arises after the market has had a good run or been in decline for an extended period.
Needless to say, now is one of those times. The great year clients had last year, and the year before, is making them a little antsy – “When will this end?” Other investors that haven’t participated in the rally are uneasily wondering whether there’s anything left to buy into.
The result of this demand for precision is that Chris, David, Scott, Sher and I are sounding a little dumber than usual - we’re saying “I don’t know” a lot. But the reality is, NOBODY KNOWS. It’s impossible to predict markets for periods of less than … well … um … er … three years I guess (or should that be longer?).
At Steadyhand, we do try to predict markets. Specifically, we have a view on where bonds and stocks will be 5 years from now. Currently, we have a return target for stocks of 5-7% per annum. What we ‘don’t know’ is how we’re going to get there.
We’ve prepared this chart for our client presentations to illustrate our approach to forecasting.
In other words, there’s a reasonable chance that $100,000 invested today in a diversified portfolio of stocks (Canada, U.S., International, big, medium, small, growing, mature, dividend-paying) will be worth between $127,268 (5%) and $140,355 (7%) in 5 years.
Is that precise enough?
I didn’t think so.