Jonathan Clements's Blog, page 377

Odds Against

THE TOP COUNTRIES for gender-equal pay are Iceland, Norway and Finland, according to the World Economic Forum. As it happens, those three countries also rank among the top four countries for Gross National Happiness. The U.S. didn���t crack the top 10 on either list.

The gender wage gap is a major problem in the U.S.���and it affects all of us. Over half of American families are dual income. That means women not receiving their financial due impoverishes American families. That, in turn, puts pressure on men to earn more.

Yet it seems many folks are reluctant to admit we even have a problem. Ellevest’s��2018 Money Census found that, while 83% of women recognize that there���s a gender wage gap and fully acknowledge the financial and career inequalities women encounter on the job, only 61% of men agree.

Things clearly need to change at a faster pace. We need more aggressive investigation of wage discrepancy. We need corporations to create genuine opportunities for women and minorities to advance. We need more transparency in wages. Americans are simply too reluctant to share salary information, even as they broadcast every other detail of their lives. When I was working in Thailand as a foreign exchange dealer, all employees��� salary and bonuses were publicly disclosed at all levels.

But change, unfortunately, will take time. Until then, women need survival strategies, so they can succeed in the corporate world. For me, I was forced to find ways to advance, inch by inch, during my career, and keep a positive attitude and not lose faith along the way.

Most of all, I focused on what was best for my family and what we needed, rather than what we didn���t have. Quitting and having no pay���while it might have briefly felt good���paid no bills and would have left me in a worse position to advocate for change.

So I worked hard and was always willing to take on new projects. I kept myself open to learning new skills. If the company wouldn���t train me, I looked to learn on my own. That way, if an opportunity to advance came along, I was ready.

I kept in mind that, however fairly or unfairly I was paid, my career and salary would one day cease. I planned for this by saving diligently. Knowing that I got paid less than my male colleagues, I compensated by living frugally and saving as much as I could.

I also tried not to let the dings and setbacks get me down. I kept in mind my father���s advice when he coached me in tennis: “When you lose a point, focus on the next point. The last point is not relevant anymore.”

He also always encouraged me to “keep fighting. No matter how far behind you are, as long as the game is still being played, you still have a chance.” When I was declined a promotion, I quickly moved on. I focused on my next move or my next opportunity. I can���t claim it was easy. Before I landed my final position as a vice president of credit risk management, I had applied internally for 83 positions.

Jiab Wasserman recently retired at age 53 from her job as a financial analyst at a large bank.�� She and her husband, a retired high school teacher, currently live in Granada, Spain, and blog about financial and other aspects of retirement���as well as about relocating to another country���at YourThirdLife.com . This is the final article in a three-part series about the obstacles women face in the workplace. The previous installments were��Mind the Gap��and��Not So Fast.

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Never Retire

IF YOU���VE EVER asked for career advice, you were probably told to ���follow your passion.��� This seems like great advice. Who wouldn���t want to do what they���re passionate about every day?

The reality: What you���re passionate about may not be a viable career. I���m passionate about the game of golf. But I fell short of making it my career, despite playing collegiately.

There have been plenty of times when I���ve thought I needed to change direction. I thought I needed to find a new ���passion��� and do that for my work every day. Fortunately, through a few minor changes in my work environment and business structure, I���ve been able to create the ideal work setup for myself.

Looking to make a change yourself? Here, inspired by the Japanese notion of Ikigai, are five ways to enjoy your work so much that you���ll never want to retire:

1. Do what you love.��When searching for your next career, or simply a new work environment to thrive in, make sure you���re doing what you love. There are all sorts of things you probably love to do. Start making a list, regardless of how silly each item may seem in terms of a career. As you go through each day, when an idea strikes you, write it down. This could be an endless list that continues to evolve over the course of your life���and helps you find the right direction.

2. Do what you���re good at.��Now that you know a few of the things you love, ask yourself: What am I good at? You may love a lot of different things. I know I sure do. But that doesn���t mean you���re good at them or good enough to turn them into a career. We all have special talents that we may not think twice about, but���in the eyes of others���can seem quite amazing. Are there things you regularly get complimented on? You might also ask your friends and family to tell you what they think your talents are. You���ll probably be surprised by their answers.

3. Do what the world needs.��After listing things you love and filtering it down to what you���re also good at, you need to make sure the globe actually needs what you���re offering. There are inventors across the world who come up with the most amazing new tools and gadgets���which then go unnoticed. If the world doesn���t need what you are offering, your service or product will likely fall short of your goals. It���s good to be ahead of the times by innovating. But innovating too much too soon is often a killer for even the best of ideas. Companies large and small face this problem on a daily basis.

4. Do what you can be paid for.��You���ve determined what you love, what you���re good at and what the world needs. But can you also be paid for the service you���re offering? This is the most difficult step. Determining what you can be paid for often requires the most trial and error. You have to put yourself out there and fail a few times before you can bring it all together. If you can get at least three strangers to buy your product or service before you launch, you might be onto something.

5. Do what challenges you. To thrive, step outside your comfort zone. An easy life may sound appealing. But it���ll get boring quickly. I have found that the happiest individuals are the ones who always seem to be challenging themselves. If you listen to world-class athletes and other top performers, you���ll hear them talk about the process. They enjoy the preparation and the struggle just as much as they enjoy accomplishing their goals.

Ross Menke is a certified financial planner and the founder of Lyndale Financial, a fee-only financial planning firm in Nashville, Tennessee. He strives to provide clear and concise advice, so his clients can achieve their life goals. Ross���s previous blogs include Starting Young,��That Extra Step and Keeping It Going. Follow Ross on Twitter @RossVMenke.

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December’s Hits

LAST MONTH wasn’t great for traffic to this site, with page views down 9% from November. My suspicion: Folks were too busy spending money���and didn’t want to dent their holiday cheer with awkward thoughts of their financial future.

Still, I consider it a good month for HumbleDollar. Why? Five of the seven most popular blog posts were written by folks other than me���and I love it when contributors to the site get the recognition they deserve:

Just in Case
Taking Us for Fools
Grab the Roadmap
First Impressions
Be Like Neil Young
Keeping It Going
What Matters Most

Readers also flocked to our list of the most popular articles published by HumbleDollar since its year-end 2016 launch. In addition, December saw big traffic for the online version of the two newsletters we put out last month, Seven Ideas and No Kidding.

In recent weeks, I’ve almost completely updated HumbleDollar’s money guide, including the chapters on taxes and estate planning, and the stats on market performance and valuations. Check it out.

Follow Jonathan on Twitter�� @ClementsMoney ��and on Facebook . His most recent articles include What Now and��Strings Attached. Jonathan’s ��latest book:��From Here to��Financial��Happiness.

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Time to Reflect

FOR CHRISTMAS, I bought Rachel a saucepan and a universal travel charger for her smartphone. The previous year, I bought her a pair of gloves and socks. She likes gifts that are practical and good value. During December, we prefer to spend our Christmas money on weekend trips. We live in Los Angeles county and this year we went to La Jolla and Las Vegas.

We like to collect pictures of our adventures. We not only store them on the cloud, but also keep some of them in a scrapbook and on a flash drive. We frequently look at our pictures, because it makes us feel more alive than any item we could purchase. For Christmas, Rachel gave my mother a 2019 calendar with pictures from our 2018 adventures. My mother was thrilled. Pictures seem to bring out the joy in people.

Travel doesn���t just offer enriching experiences and great memories. It���s also a chance to see what���s wonderful about the world���but also what���s wrong. While we were in Las Vegas, we went to a buffet. I noticed a young man devouring one plate of food after another. While watching him eat, I realized we live in a society where it’s too easy to overindulge.

Food is everywhere. While filling your car with gas, you can purchase fast food.�� While standing in the checkout line at a grocery or drug store, you���re tempted with candy. All of this can’t be good for our health.

It���s also too easy to spend money in other ways. With a credit card, you can make a purchase on the spur of the moment���which means people take less time to evaluate their spending. Credit card companies encourage you to spend by enticing you with cash back, airline miles and points toward hotel accommodation.

Spending with a credit card isn���t just easier. It���s also less painful. You aren���t physically relinquishing an asset during the transaction. That’s why I carry a roll of bills in my pocket. It���s my way of reminding myself that these are real dollars I’m spending.

Travel also offers the chance to interact with others���something we don���t do enough of. You now can converse with your friends by texting and using social media, such as Facebook and Snapchat. There���s a big difference between talking with your fingers and speaking with your voice on the telephone or in person. You really don’t have that same close connection���which is what you need to get through the rough times.

It also takes more nerve to be disparaging to someone���s face than it is through Facebook or Twitter. It seems like some people think social media gives them the license to fudge the truth and attack the character of others. What if you get out and meet those with differing views? Maybe you���d be more sympathetic to their point of view.

Dennis Friedman retired at age 58 from Boeing Aerospace Company. He enjoys reading and writing about personal finance. His previous blogs include Be Like Neil��Young,�� First Impressions ,�� Family Inc. ��and�� Creative Destruction . Follow Dennis on Twitter��@dmfrie.

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Intuitively Wrong

ROBERT SOROS, son of billionaire hedge fund manager George Soros, has a surprising explanation for his father’s success: ���You know the reason he changes his position on the market or whatever is because his back starts killing him.���

You read that right: The younger Soros attributes his father’s success to a sort of sixth sense���as if he can feel the market in his bones. He goes on: ���My father will sit down and give you theories to explain why he does this or that.��� But, Robert says, ���It has nothing to do with reason. He literally goes into a spasm, and it’s this early warning sign.���

In Soros’s case, if you believe his son, intuition has helped make him one of the world’s wealthiest people. Does this mean that you, too, should trust your gut when making financial decisions?

Nobel Prize winner Daniel Kahneman has been studying this question for decades. His conclusion: Yes, intuition can be effective���but only when you meet three conditions:

First, there must be regularity in whatever you���re trying to predict.��An example is a chess board, where the set of outcomes is finite. Even if that finite set is large, there���s still enough regularity that a master can develop reliable intuition. Kahneman also points to medicine, where experienced physicians can indeed develop accurate intuition. In short, Kahneman says, ���you have to ask… if it’s a good domain, one in which there are regularities that can be picked up by the limited human learning machine.���

Second, you need a lot of practice.��If you���re fortunate to work in a field that does have the necessary regularity, the next requirement is that you need frequent and numerous opportunities to hone your expertise. If you’ve played chess, or you work as a physician or in another scientific field, you can probably attest to that. After five or 10 or 20 years of practice, you can probably recognize patterns a mile away that, earlier on, you might have missed.

Kahneman’s final requirement is immediate feedback.��In addition to regular practice, you need to know whether you’re actually succeeding. If feedback is indirect or delayed, it’s that much harder to develop intuition.

What does Kahneman say about the world of finance? Is it possible to develop intuition about the economy or the stock market? In a word, no. That’s because it fails the first criterion: regularity. Unlike a physical or scientific process, or even a game of chess, the economy is driven by a nearly infinite number of factors, many of which interrelate in unpredictable ways. There are too many variables and they never present themselves in exactly the same way.

I have seen this firsthand. In 2008, shortly after the release of the first iPhone, I remember meeting an investment manager who remained a staunch supporter of Research in Motion (RIM), the company that made the BlackBerry. To him, the iPhone didn’t represent a threat, for this reason: ���I play tons of golf with Jim Balsillie [then the CEO of RIM]. These guys didn’t just suddenly become dumb.��� In other words, he was relying on intuition. Since that time, RIM’s share price has lost nearly all its value.

But what about George Soros and his back spasms? Clearly, his success speaks for itself and, according to his son, intuition accounted for a large part of it. I see a few possible explanations: It could be that, when Robert made those comments, he didn’t fully understand his father’s process. In other words, maybe it looked more subjective than it was. While it makes for a colorful story, I doubt Soros’s back pain was his primary source of data.

Another possible explanation: Perhaps Soros limited his bets to narrow areas within finance that��do��meet Kahneman’s three criteria. A final explanation may be ���all of the above.��� It may be that Soros brought a unique combination of skill, luck and intuition to specific areas where it gave him an extraordinary edge.

Whatever the explanation, I think it’s clear that the number of George Soroses in the world is very limited. However he does what he does, I don’t believe it’s a useful model for the rest of us.

At a time like this, with so much financial uncertainty, it’s tempting to turn to intuition. It’s much more comforting to��try��to guess where things are going than to surrender to the alternative���accepting that we just don’t know. But here’s my advice: If you think your back is telling you something, it’s probably better to visit the orthopedist than your stockbroker.

Adam M. Grossman���s previous blogs��include Paper Tigers,��What Matters Most,��Happy Compromises��and��Pushing Prices . Adam is the founder of�� Mayport Wealth Management , a fixed-fee financial planning firm in Boston. He���s an advocate of evidence-based investing and is on a mission to lower the cost of investment advice for consumers. Follow Adam on Twitter�� @AdamMGrossman .

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What Now?

LIKE THE COBBLER whose children have no shoes, I get so busy with this website and other projects that I tend to neglect my own portfolio. I think of it as benign neglect: If you���re invested in a globally diversified portfolio of low-cost index funds, there isn���t much reason to look or much need to trade.

But for the past week or so, I���ve been doing plenty of looking���and a little trading.

By the market close on Dec. 24, the S&P 500 stocks were down 20% from their September high, putting them at 18 times trailing 12-month reported earnings. For anyone with a contrarian bent and cash to invest, it seemed the market was presenting a wonderful holiday gift. But that gift was quickly snatched away: Three trading days later, the S&P 500 had bounced back 6% and valuations are a tad less appealing.

What to do? We all have different financial situations and are at different stages in our lives, and that will drive how we react. Here���s what I���ve been doing���and plan to do.

Thanks to the market slump, my stock allocation got down to 62%, with the remaining money split between inflation-indexed bonds and short-term corporate bonds. If I count the private mortgage I wrote for my daughter in 2015, which I consider part of my bond holdings, my asset allocation would be even more conservative.

The drop to 62% prompted me to move 2% of my portfolio from bonds to stocks. That, combined with the rally of recent days, has boosted my stock allocation to 66%. Should I raise my stock allocation further? As I wrestle with that question, four notions run through my head.

First, I believe markets are efficient���most of the time. Every so often, however, investors seem to lose their collective moorings. Think about purchasers of tech stocks in the late 1990s, home buyers in 2005 and early 2006, and bitcoin speculators in 2017. Think also about the panic selling by stock investors in 2002, and again in late 2008 and early 2009.��Periods of frenzied buying are moments of grave danger���and periods of frenzied selling are moments of great opportunity.

That brings me to a second, related notion: Great opportunities are becoming harder to spot. Even at the depth of the bear market in early 2009, stock market valuations didn���t seem that compelling. Indeed, because valuations over the past three decades have been so much higher than the historical averages, it���s hard to know what normal is. On top of that, this is a market dominated by professional traders and money managers. If stocks resume their decline, the market will bottom not when your neighbors panic���which you may hear about���but when the professionals do, which likely won���t be visible to you and me.

Third, the financial freedom I have today was bought, in part, by shifting my portfolio to 94% or 95% stocks in early 2009, while also pouring any extra money I could find into the stock market. It felt like shoveling dollar bills into an incinerator���which is how great buying opportunities feel. Today doesn���t feel that way and, I suspect, we won���t get there. While we have ample political turmoil, the underlying economic problems seem far less worrisome than those of 2008 and 2009.

Fourth, I already have enough set aside for retirement and hence I don���t need to take a lot of risk with my portfolio. In my current semi-retired state, I���m no longer adding fresh savings to my portfolio. But I���m also not drawing much from my nest egg. I figure I probably won���t regularly tap my portfolio for income until I���m age 60, which is five years away. The upshot: I calculate that I could take my bond holdings down to 20% and stocks up to 80%, and still go 10 years without being compelled to sell shares.

Should I get that aggressive���and arguably take risk I don���t need to take? When the market falls, folks tend to view stocks as increasingly treacherous. I see just the opposite. As shares slide and valuations subside, owning stocks strikes me as less and less risky. I���m a lot more comfortable buying stocks today than three months ago.

My current plan: If the stock market continues to trade at current levels, I���d gradually rebalance my portfolio to a 70% stock allocation, which I deem to be a neutral position. If the S&P 500 drops more than 30% from its Sept. 20 closing high of 2930.75, I may go even higher���perhaps as high as 80%.

This, I readily acknowledge, is suspiciously like market timing. But I���d argue the portfolio changes I���m talking about are incremental, not the big all-or-nothing bets that market timers make. More important, I���d only end up at 80% stocks if the market presented a truly stunning buying opportunity���one of those rare moments, like late 2008 and early 2009, when investors collectively freak out. It would be great if it happened. I fear I won���t get so lucky.

Follow Jonathan on Twitter�� @ClementsMoney ��and on Facebook . His most recent articles include Hits 2017-18,��Strings Attached, Seven Ideas and��Just in Case. Jonathan’s ��latest book:��From Here to��Financial��Happiness.

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Hits 2017-18

AS THIS SITE heads toward its second birthday, I was curious to see which articles had resonated most with readers. Below are the top 20 blog posts and newsletter articles published by HumbleDollar since its launch at year-end 2016:

Unanswered
The $121,500 Guestroom
Ten Commandments
The Tipping Point
Enough Already
Retiring: 10 Questions
Making a Difference
Second Childhood
ObliviousInvestor.com
Best Investment 2018
Ten Commandments
Fooled You
Yes, It’ll Happen
How About Later?
Bad News
Courtside Seat
When I’m 64
Next to Nothing
The Morning After
Old Story

No, that isn’t a mistake: We have indeed run two blogs headlined “Ten Commandments.” Clearly, there are limits to the creativity of your esteemed editor.

Follow Jonathan on Twitter�� @ClementsMoney ��and on Facebook . His most recent articles include Strings Attached, Seven Ideas and��Just in Case. Jonathan’s ��latest book:��From Here to��Financial��Happiness.

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Pay as You Go

WORKERS TODAY have income taxes and Social Security taxes withheld from their paychecks. But it didn���t always work that way: The withholding system experienced a difficult birth���in the middle of the Second World War.

The wide-ranging 1943 tax act included a provision that authorized withholding. But President Franklin Roosevelt thought the legislation too complicated, so he vetoed it, saying, “The American taxpayer had been promised of late that tax laws and returns will be drastically simplified. This bill does not make good that promise…. These taxpayers, now engaged in an effort to win the greatest war this nation has ever faced, are not in a mood to study higher mathematics.” The President���s veto was overridden by large margins in both houses of Congress, and withholding went on the books.

Broadway songwriter Irving Berlin supported the war effort with a song that tried to get Americans upbeat about tax withholding. Another of his morale-building numbers, ���White Christmas,��� remains a standard. Not so his withholding ditty, with its turgid lyrics:

You see those bombers in the sky?

Rockefeller helped to build them

So did I

I paid my income tax today.

Was withholding the right way to help pay for a war? Among those who have weighed in are journalist David Brinkley (no) and historian Doris Kearns Goodwin (yes).

In an article on America in the 1940s for the Jan. 3, 1994, issue of Newsweek, Brinkley recalled withholding’s introduction: “Under pressure of war, the withholding tax was born. It is doubtful that without war Congress would ever have voted for a tax so intrusive and troublesome. Because of the withholding tax, the term ���take-home pay��� entered the language. Had people been forced to count out their taxes in hard cash for some government collector, taxes in such stratospheric amounts almost certainly could not have been collected.���

Brinkley continued: ���The cost of the war was so high that the top rate eventually went to about 92%. It was explained to Roosevelt that his rich enemies would be soaked, even fleeced, beyond their deepest fears. They paid the 92%, hated it, but could not escape. It made Roosevelt so happy, Press Secretary Steve Early told me, that once or twice he saw the president spend hours poring over records sent to him from the IRS showing who paid how much.���

Congress was also delighted with the flood of money, writes Brinkley: ���Even when the war was long over, there was never any thought of ending the withholding tax. (They held the top rate at about 70% for another 16 years.) Did the enormous tax rates pay the cost of the war? No. Did the government run the war on credit and leave billions in debt? Yes.”

Convinced by Brinkley���s skepticism? I prefer Goodwin���s more positive take on withholding���s birth and the financing of the war. Here���s what she says in No Ordinary Time, a chronicle of the home front during the war years: ���The Treasury was able to finance about 44% of the total war expenditures of $304 billion through taxation. The rest was secured through war bonds and borrowing. The debt rose from 43% of the GNP in 1940 to 127% in 1946.���

She goes on: ���A transformation had been effected in the method of collecting taxes. Before the war, individuals were always a year behind in their tax payments, since they were called upon to pay taxes in quarterly installments on the income they had earned the previous year. The system had functioned well enough when rates were low and few people paid taxes, but when millions of people, unfamiliar with preparing tax forms, became taxpayers for the first time, change was inevitable. It took the form of ���Pay as You Go,��� a system that withheld taxes from paychecks before the employee even saw the money, allowing everyone to start the new year free from debt���. Since people were paying taxes with money they had never seen, their resistance to the idea of taxation lessened.���

Julian Block writes and practices law in Larchmont, New York, and was formerly with the IRS as a special agent (criminal investigator). His previous blogs include It’s All Relative,��Now or Later��and��Good Old Days. Information about his books is available at JulianBlockTaxExpert.com. Follow�� Julian on Twitter��@BlockJulian.

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Strings Attached

IT MIGHT SEEM risky to write about the gifts my kids will receive later today. Won’t that ruin the surprise? Probably not. My children and stepchildren aren’t, I suspect, regular HumbleDollar readers.

My wife and I tag-teamed on gifts this year. Her job was to find one or two items for each kid that we could wrap and throw under the tree. This works well, because she likes shopping���and I loathe it. How strong is my distaste? If I have to purchase something, I almost always order it online: groceries, toilet paper, pizza, you name it. If I never had to shop again, let alone go to an actual store, I’d be a happy man. In fact, when asked what I want for Christmas, I draw a total blank. While I’m a huge fan of travel and restaurant meals, I can’t think of a single material possession I’m hankering after.

(Actually, that isn’t entirely true. I would love to have Edouard Manet’s stunning portrait of Berthe Morisot hanging above the fireplace. But I realize that’s probably not in the cards.)

If Lucinda’s job was to find gifts we could wrap, what was my role? That would be writing checks. For years, I’ve given my children money at Christmas and on their birthdays, and now I do the same for my stepchildren and even my new son-in-law. The amount depends on how flush I’m feeling. Sometimes, it’s just $250. Last Christmas, it was $1,000 each. This year, it’s down to $500. Hey, don’t blame me: If you’d bought more copies of my latest book, ��I could have been more generous.

To be clear, I never simply give money. As my kids have learned over the years, ��it’s always money with a purpose. What purpose? It depends.

My daughter wants to get a master’s degree so, in my Christmas card, I’m suggesting she add my check to her graduate school savings. My son-in-law has a mountain of student loans from law school, and I know it weighs on him. I’ve asked that he add the $500 to his next loan payment, so he gets the debt paid off a tad quicker.

My younger stepdaughter’s $500 is going into her “house” fund. I set up the account for her last year. To be sure, the idea of owning a home is a bit remote for a 14-year-old, but I can usually elicit a smile when I show her the current account balance. My goal is to build up the fund to $20,000. That’s what I did for my son and daughter.

I also have a house account for my older stepdaughter. But her $500 is coming to her as Australian dollars. In February, she’s headed to Brisbane for her junior semester abroad. It should be a fabulous experience, and I don’t want it marred by money worries. The fact is, $500 to her is worth so much more than $500 to me, and I suspect it will bring her greater happiness.

Finally, my son’s $500 is for his retirement. He’s getting a PhD, but he had some earned income in 2018, so he qualifies for a Roth IRA. He hopes ultimately to be an academic���and I’m confident he’ll succeed���but he’ll be over 30 by the time he gets a paid position. That means he will be late to the retirement savings game. I don’t want him to be too far behind.

In other words, in handing out money, I’m trying to tell the next generation what I value financially. Is all this a little manipulative? You’d better believe it. But my intentions are good���and, let’s face it, they are getting $500.

Follow Jonathan on Twitter�� @ClementsMoney ��and on Facebook .��His most recent articles include Seven Ideas,��Just in Case,��No Kidding��and��Taking Us for Fools. Jonathan’s latest book:��From Here to��Financial��Happiness.

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Paper Tigers

I RECENTLY received some odd communications from mutual fund giant Vanguard Group.

First, it sent a white paper, ���Here today, gone tomorrow: The impact of economic surprises on asset returns.��� As the title suggests, this paper examines the relationship between the economy and the stock market. In particular, the authors asked whether accurate economic forecasts could help an active trader profit in the stock market. Their conclusion: To beat a simple buy-and-hold strategy, an investor’s predictions would need to be accurate 75% of the time. They then address the question that naturally follows: ���How achievable is a 75% success rate?��� The paper’s answer: ���Not very.���

That was the first paper���and its conclusion seemed entirely logical: Don’t bother with your crystal ball, because it’s highly unlikely to help you beat the market.

Then the second paper��arrived: ���Vanguard market and economic outlook for 2019.��� In this one, the authors provide their outlook on a variety of topics: economic growth, inflation, unemployment and much more. The paper runs more than 40 pages, with probabilities assigned to a variety of events. For example, they foresee an 18% chance that the U.S.-China trade war escalates and a 29% chance that the two countries reach an agreement.

In other words, the second paper was full of the sort of economic predictions that, in the view of the first paper, are largely ���irrelevant.���

What’s going on here? Vanguard’s first paper made perfect sense. Why did they invest so much time assembling that second one���a report that, in their own colleagues’ estimation, is unlikely to help investors?

I don’t mean to single out Vanguard. At this time of year, all the big financial firms are busy issuing forecasts. Morgan Stanley sees corporate profits slowing next year and the potential for a technical recession. Credit Suisse sees the S&P 500 rising to 3,350 in 2019. And Wells Fargo projects S&P 500 profits at precisely $173.37 per share.

In short, everyone has an opinion. Is it possible that Vanguard’s first paper���the one skeptical of predictions���was the one that was wrong? If all of these major institutions spend so much time formulating and publishing forecasts, surely they must be worthwhile.

Economist Prakash Loungani has spent the better part of two decades researching the issue. In a 2001 study, Loungani evaluated experts’ ability to forecast recessions. His conclusion was blunt: ���The record of failure to predict recessions is virtually unblemished.��� In a follow-up study, looking at the 2008 financial crisis, Loungani’s findings were nearly identical. Economists uniformly failed to predict that global recession.

Perhaps Loungani’s study wasn’t comprehensive enough. What about all-star forecasters? Here the evidence is inevitably more anecdotal, but no more encouraging. Consider Abby Joseph Cohen, the recently-retired Goldman Sachs strategist. Her forecasts during the 1990s earned her the nickname ���the Prophet of Wall Street.��� But she later missed the two biggest meltdowns of her career: In 2000, when the dot-com bubble burst, Cohen predicted the market would rise. And she, along with virtually everybody else, missed the 2008 collapse.

A more recent example: Ray Dalio, the billionaire founder of hedge fund Bridgewater Associates, proclaimed in January of this year: ���If you’re holding cash, you’re going to feel pretty stupid.��� The year’s not over yet. But so far, cash has done materially better than the stock market, which is in negative territory.

The reality is that forecasting has always been difficult���and not just in the world of economics. Decca Records told the Beatles they have ���no future in show business.��� Walt Disney was once fired for ���lacking imagination.��� The list of incorrect predictions is long.

If forecasts are so error-prone, why do sensible organizations like Vanguard continue issuing them? In part, I believe it’s in response to investor demand: People want to know what’s going to happen and they believe experts can tell them. It’s just human nature. But now that you’ve seen the data, here���s my recommendation: Tune out anyone who approaches you with a crystal ball. Instead, situate yourself so the market’s short-term ups and downs don’t impact your ability to meet your financial goals���or to sleep at night.

Adam M. Grossman���s previous blogs��include What Matters Most,��Happy Compromises��and��Pushing Prices . Adam is the founder of�� Mayport Wealth Management , a fixed-fee financial planning firm in Boston. He���s an advocate of evidence-based investing and is on a mission to lower the cost of investment advice for consumers. Follow Adam on Twitter�� @AdamMGrossman .

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