The Canadian educator Laurence J. Peter once quipped, “An economist is an expert who will know tomorrow why the things he predicted yesterday didn’t happen today.”
While Peter’s pithy indictment may perhaps be a bit unfair to an entire class of economists, historical study and contemporary research suggest that following the “experts” or trends based on the current “noise” isn’t always advisable.
With social media, 24-hour news, and a seemingly unending supply of financial influencers (“finfluencers”), there is certainly no shortage of voices claiming to be experts keen to share their opinions on the latest noise.
Read on to find out why ignoring these media experts and sticking to your financial plan could be the best approach.
Key economic events have been misjudged by many experts
Experts have either missed or misjudged some of the most significant economic events of the last century.
For example, Irving Fisher was one of the most influential economists of his time, but he wildly missed the mark three days before the Wall Street Crash of 1929, claiming that stock prices had reached “a permanently high plateau.”
And it works the other way as well, as many experts predicted a huge economic catastrophe in the year 2000, dubbed Y2K. Thankfully, that particular disaster didn’t come to fruition, but it did leave some experts a little red-faced.
Even today the experts get it wrong. The Guardian reports that the Office for Budget Responsibility (OBR) admitted towards the end of 2023, that they had made “genuine errors” and had “significantly underestimated the strength and persistence of inflation”.
To illustrate this, Vox reports a study conducted by Professor Philip Tetlock, that asked 284 people frequently called upon for their expertise to make predictive judgments about the world over roughly two decades.
Tetlock found that had he asked these experts to randomly make predictions, they would have had a better success rate.
In Tetlock’s study, experts who regularly made media appearances performed worse than their lower-profile colleagues. He surmised that this was perhaps due to the temptation among pundits to offer confident soundbites and predictions in response to the “noise” of the world and the media.
In a financial context, “noise” refers to short-term movements or random fluctuations in the market that are not indicative of the underlying fundamentals or long-term trends.
While the temptation may be to follow expert advice regarding the current noise, the research and history show that when it comes to predictions and advice, experts can’t always be relied on. Moreover, the market generally tends to bounce back from periods of uncertainty, so making short-term decisions based on fluctuations may not be the best route toward long-term financial success.
So, rather than following the advice of experts, you may be in a better position to weather market fluctuations by building a diversified portfolio and focusing on consistency and long-term goals.
How to ignore experts and noise when developing your financial plan
Peaks and troughs are part and parcel of the financial market, and it could be better to stick to your financial plan instead of making decisions based on fluctuations or short-term advice from media experts.
So, how do you shield yourself from external influence when developing a financial plan?
Focus on your personal goals
A well-crafted financial plan should focus on your unique goals and aspirations. You may want to help to financially support your family, or work on putting away enough money so you can retire early.
Whatever your goals, expert predictions generally shouldn’t interfere with your overall life objectives. Remember, the market has a habit of bouncing back after dips, so be particularly wary of short-term investment advice or forecasts about market volatility.
By adhering to your plan, you are more likely to achieve the goals that are meaningful to you and enjoy the lifestyle you have always wanted.
Take a long-term approach
Following a successful financial plan requires taking a long-term approach and remaining disciplined.
Nutmeg reports that if you had invested in the stock market for a single random day between 1971 and 2022, you would have had roughly a 50% chance of making gains. Yet, if you invested for a full quarter, your odds would rise to 65.6%.
Investing for a year would have increased your chances to 72.8%, and 10 years would have raised the odds to 94.2%.
Consistently following a financial plan enables you to build wealth over time. By taking a long-term approach to saving and investing, and ignoring short-term advice or fluctuations, you can take advantage of compounding returns and grow your assets for the future.
Understand the risks
A good financial plan also considers various risks, such as market fluctuations, job loss, or unexpected expenses. By adhering to your plan, you’re better prepared to handle these risks and mitigate their impact on your financial stability.
Work with a financial planner
A financial planner can help you avoid advice from so-called media experts.
Unlike pundits or politicians, they can work with you to develop personal goals based on your values and long-term goals, rather than transient short-term factors.
A financial planner can also provide reassurance during periods of market volatility to ensure you remain focused and calm, and are not tempted to change course.
If you find it hard to switch off the noise or ignore advice from so-called experts, get in touch.
Email enquiries@blackswanfp.co.uk or contact your adviser on 020 3828 8100.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
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