Last Updated Apr 7, 2009 4:18 PM EDT
If you think back to the late 1990s, plenty of people appeared to be geniuses. They saw the Internet and technology revolution coming. They argued that those who understood the new paradigm could make huge profits by investing in technology firms.
Well, they were partially right. There was a technology and Internet revolution that has had an enormous, positive impact on productivity. But not on technology stock prices.
Funny thing about the financial markets. They don't always play out as you anticipate. While an expert may get a theme correct, the expert may be totally wrong about the economic impact of that theme.
Today the hot topic is banks. Yes, there are many, many problems with banks. But trying to predict what that means long term for the market is a silly endeavor. The conventional wisdom is perpetual doom. But the conventional wisdom in 1999 from the technology revolution was ever accelerating profits at 25 percent a year.
The reality is that any prediction an expert makes is more likely to be wrong than it is to be right. And if you bet big based on some expert's unique insight on the world, you can do a lot of damage to your long term plans.
Once you recognize the limitations of market forecasting, you stop trying to predict the future. That doesn't mean you stop making plans and managing your wealth prudently. It just means you need to focus on diversification and balance. Since neither you nor anyone else can be sure how things will turn out, you need your retirement assets positioned for a range of probable outcomes.
Image via Flickr griraffes, CC 2.0