Why I Still Don’t Predict Market Returns: 2018 Edition


As the year wraps to a close, market prognosticators saddle up, ready to trot out their New Year predictions. If you’re looking for the same from me, you’ll likely be disappointed. The business of predicting investment returns is fraught with distractions and I feel it may harm rather than help your probability for success.

First, kudos to whoever predicted returns greater than 20% for the market last year. Even more accolades shall go to the person who accurately predicted the eerily calm standard deviation of said market with only 3% declines throughout the year besting all but a tie for 1995 for shallowest drawdown since 1980.[1]

If a magician existed who could conjure such a forecast, they would deserve your awe. But, their act would be more for show than substance as the difficulty in repeating such prognostication would be incalculably difficult.

Instead, we would like to deal with probabilities, and the best I’ve seen in terms of future probabilities for market returns. You might be surprised that these odds were published a few years ago, but their persistency remains.[2]


And thus, the probability is with you that in more years than not, you will likely receive potential positive returns. Still, there are those unpredictable years about one-third of the time where results are disappointingly negative.

What does one do with the uncertainty of what’s next?

Focus on things you can control, not things out of your hands.

  • Your investment behavior and financial decisions may be a potential gold mine. Studies say that the most quantifiable advantage of working with an investment advisor is behavioral coaching which may add 1.5% to investment returns.3
  • Review your allocation. One thing we do have the luxury of knowing is past returns. And what we know today is that if you haven’t been rebalancing your mix of stocks and bonds, you likely have more stocks than you did at the beginning of 2017. Furthermore, given the extreme lows in terms of market volatility, your growing stock exposure may feel less risky than it has in the past. A commitment to sticking with a consistent allocation can help smooth out the potentially wild ride of investing.
  • Don’t give away funds by paying extra taxes or fees. Pay attention to the costs of your investments. Also, make sure that you’re investment strategy is modernized with appropriate cost basis elections, advisable withdrawal strategies for retirement accounts, and appropriate investments for your current tax bracket.

It may feel disappointing to move away from wondering about what returns are next. The inquiring mind wants to know the future. By reducing your focus on future returns to a curiosity level rather than obsession, this mindset could help increase the odds of your financial confidence.

Melissa Joy, CFP®, CDFA® is Partner and Director of Investments at Center for Financial Planning, Inc.® In 2013, Melissa was honored by Financial Advisor magazine in the Research All Star List for the third consecutive year. In addition to her contributions to Money Centered blogs, she writes investment updates at The Center and is regularly quoted in national media publications including The Chicago Tribune, Investment News, and Morningstar Advisor.

Financial Advisor magazine's inaugural Research All Star List is based on job function of the person evaluated, fund selections and evaluation process used, study of rejected fund examples, and evaluation of challenges faced in the job and actions taken to overcome those challenges. Evaluations are independently conducted by Financial Advisor Magazine.

[1] JP Morgan Guide to the Markets, 1/1/2018, https://am.jpmorgan.com/blob-gim/1383407651970/83456/MI-GTM_1Q18.pdf?segment=AMERICAS_US_ADV&locale=en_US

[2] “Here are the odds that US stocks will rise in 2016”, Mark Hulbert, Marketwatch, 1/8/2015, https://www.marketwatch.com/story/here-are-the-odds-that-us-stocks-will-rise-in-2016-2015-12-08

3 “Putting a value on your value: Quantifying Vanguard’s Advisor Alpha, September 2016, Vanguard.

The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Melissa Joy and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Diversification and asset allocation do not ensure a profit or protect against a loss. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results.