The surest sign of the new year for investors? It’s the seemingly endless recommendations by financial experts on the best places to put your money in 2013.
You know the drill: the personal finance magazines touting the best stocks or funds for ’13; mutual fund managers touting, well, themselves; and financial commentators confidently picking stocks and predicting the directions of the markets, while others confidently predict different stocks and different directions for the markets.
Here are a few things to remember as the predictions industry does its thing early in the new year:
The old standby, past performance does not predict future success, applies to systems such as Morningstar’s star ratings for mutual funds. A five-star rating, Morningstar’s highest, only means that a fund has performed well in the past. A high rating says absolutely nothing about a fund’s future performance; there are no crystal balls.
Whether it’s picking stocks you can own “forever,” stocks for the next decade, or stocks for the next year, financial magazines generally do a poor job. The more responsible publications will, after a bad year, own up to their performance. They rarely look back on predictions they made a decade ago, however.
Many financial gurus’ exaggerated predictions are designed to grab headlines, not provide insight. They also have an underwhelming track record. CXO Advisory Group LLC tracked the approximately 6,500 predictions of 68 market experts from 2005 through 2012 and found the median accuracy of their predictions was 47%. So you could pay attention to the gurus, or flip a coin.
Or, better yet, you could take the time to learn the basics of investing through the wealth of resources in the Investors section of our site. That includes our flagship publication, the Texas Investor Guide: Strategies for Investing Wisely and Avoiding Financial Fraud. Our print and online publications will help you tune out the financial babble and tune into unbiased, noncommercial, and hard-hitting information for investors.