2013 economic outlook

11 Feb

It’s that time of year again: Bookstore shelves are lined with books making future financial forecasts, and magazine and online articles are everywhere with detailed breakdowns of where we are headed and why. Yet, when it comes to finances, even the smartest people are capable of making very, very bad predictions. While these forecast books and articles are always interesting to read, they should be taken with a giant grain of salt.

To illustrate that point, I’m going to share an article I came across recently—an article that I found so compelling that I made it the centerpiece of one of my recent radio shows. The article, an excerpt of which can be found here, appeared in Fortune Magazine in August of 2000, and predicted 10 stocks to “last the decade”. You can see where this is going, right? As was pointed out in the article summary, far from being a list of decade-long winners, this is a portfolio of stinkers. The article endorsed companies like ENRON, Viacom, Univision, and included three bankruptcies and a bailout, without a single winner in the bunch. Anyone who followed the advice of this article would have lost 70% of their portfolio’s value.

Apart from the humor in this, there are some very real lessons to be learned. It’s worth remembering to look beyond the hot stock picks and embrace proven, successful and stable long-term investment strategies as well as products like annuities that take a largely risk-free approach. If even the experts and the best in the business can get it this wrong, we all need to proceed with caution when it comes to the latest and greatest financial forecasts.

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