How are these "can't miss" predictions panning out?

(MoneyWatch) This is our third quarterly review of the eight "sure" financial predictions we identified at the start of the year. Keep in mind that if they really were sure things, they should all (or at least most of them) have come true. As is our practice, we'll give a score of +1 for a forecast that came true, a -1 for one that was wrong and zero for one that was basically a tie. All returns are through Sept. 30.

The golden age of stock investing is over

Reasons that stocks wouldn't do as well in the future included:

  • Demographics (people shifting from stocks to bonds as we get older and more conservative)
  • Our fiscal problems
  • Currently high valuations

The market ignored these issues and had a very strong first half of the year. Vanguard's 500 Index fund (VFINX) returned 19.7 percent. Small and value stocks did even better: Vanguard Value Index (VIVAX) returned 20.7 percent, Vanguard Small Value Index (VISVX) returned 24.2 percent,and Vanguard Small Cap Index (NAESX) returned 26.5 percent. Score: -1

Fast-growing economies will provide the best results

Another sure thing was that Europe's recession and the slow growth in the U.S. would mean that the highest returns would come from the fastest-growing economies, specifically China. European stocks should be avoided.

The iShares MSCI China Index (MCHI) lost 2.9 percent, and underperformed VFINX by 22.6 percent and Vanguard's European Index fund (VEURX) -- which returned 15.5 percent -- by 18.4 percent. Score: -1

Inflation will rise

The third sure thing was the inevitable rise in inflation due to the fiscal and monetary stimulus that continues to be injected into the economy. Through August, inflation ran at an annual rate of 1.6 percent, 2 percent, 1.5 percent, 1.1 percent, 1.4 percent, 1.8 percent, 2 percent and 1.5 percent, respectively. Score: -1

Investors should keep bonds short-term

Vanguard's Short-Term Bond Index Fund (VBISX) returned 0 percent, its Intermediate-Term Bond Index Fund (VBIIX) returned -3 percent and its Long-Term Bond Index Fund (VBLTX) returned -8.7 percent. That's one right. Score: +1

The price of gold will soar

The fifth sure thing was that the Federal Reserve's easy monetary policy and rising inflation would send the price of gold soaring. The price of gold ended the year at $1,655.50 and closed September at $1,326.50, a loss of 19.9 percent. Score: -1

In the U.S., the best returns are from equity investments with higher yields

The sixth sure thing was that you should seek the "safety" of investments with higher yields -- such as high-dividend stocks, master limited partnerships and real estate -- for domestic stocks.

Vanguard's REIT Index Fund (VGSIX) returned 3.1 percent, the Alerian MLP ETF (AMLP) returned 15.4 percent and the SPDR Dividend ETF (SDY) returned 20.6 percent. That's an average return of 13 percent, below that of VFINX's return of 19.7 percent. However, since high-yield stocks are basically value stocks, the more appropriate benchmarks are value funds. VIVAX returned 20.7 percent, and the VISVX returned 24.2 percent. Score: -1

Own Apple stock

The road to riches this year was supposed to be through owning Apple (AAPL) shares.

Apple's stock price closed 2012 at $529.09. It finished September at $476.75, a drop of 9.9 percent. It also underperformed the S&P 500 by almost 30 percent. Score: -1

It's a stock picker's year

Our eighth sure thing was that it will be a year when active fund managers outperform their benchmarks. We'll have to wait for the official Standard & Poor's Indices Versus Active Scorecard, but their mid-year review showed that most active managers in all the categories except small-cap growth underperformed their respective benchmarks for the trailing 12 months. We feel safe in calling this another failure. So that brings the final score for these predictions to -7/+1.

So of the eight sure things that were expected to occur, just one has actually happened. Not exactly a great record for sure things. Which brings to mind the adage, "That it ain't what a man don't know as makes him a fool, but what he knows for sure but ain't so." It's also a great reminder of the wisdom of Warren Buffett's advice to ignore all market forecasts.

Image courtesy of Flickr user 401(k) 2013

  • Larry Swedroe On Twitter»

    Larry Swedroe is director of research for The BAM Alliance. He has authored or co-authored 13 books, including his most recent, Think, Act, and Invest Like Warren Buffett. His opinions and comments expressed on this site are his own and may not accurately reflect those of the firm.

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