In the last few weeks we have begun seeing a lot of our clients and are also talking at public events with local retirees about the current state of our economy. We often start out our talks by reviewing the facts that have occurred in the recent past. The last year in general proved to be to a great year to be invested in the stock market, most types of investment strategies went up. Usually we move on to the important question: “what is our prediction about the stock market for 2013?” We’d like to share our thoughts with you, so you can have what we believe is the best possible outcome for making money this year.
Investors looking for stock market predictions in 2013 may want to avoid the news headlines, trusting their gut, or following the herd because those predictions are often wrong. We say that while at the same time we have our own predictions about the stock market this year, we believe there will be plenty of opportunities to make money this year by staying invested. Yet, why we caution investors to not follow stock market predictions is because the stock market is an area that you and even the brightest minds on Wall Street have little to no control over. That’s right! Predicting the stock market is very difficult. That is because it is impossible to factor in the unexpected and the unknowns that always happen throughout the year.
Let’s look at some facts, thanks to our friends at BTN Research:
1. CRYSTAL BALL – 3 of 10 equity strategists asked on 12/19/11 to predict where the S&P 500 would finish on 12/31/12 made predictions that were within just 6 points of the actual 2012 year-end close. The S&P 500 advanced from 1220 on 12/19/11 to 1426 on 12/31/12 (source: Barron’s).
2. CONTRARIAN INDICATOR – 59% of individual stock investors were either “neutral” or “bearish” on the US stock market on 12/28/11 as the S&P 500 was completing a +2.1% gain (total return) for 2011. The S&P 500 then gained +16.0% for 2012 (source: American Association of Individual Investors).
3. LONG SHOT – Money manager Laszlo Birinyi predicted on 1/04/11 that the S&P 500 would rise from its then current level of 1272 to 2854 by 9/04/13. From its 1/11/13 close of 1472, the S&P 500 will have to gain +94% over the next 8 months to reach Birinyi’s lofty forecast (source: Investment News).
4. OIL GLUT – A 7/04/11 article written by Gene Epstein of Barron’s forecasted that “as oil producers’ spare capacity gradually declines to worrisome levels, the average price of oil could reach $150 per barrel by the spring of 2012 with spikes in price to $165 or $170.” Oil was $95 a barrel on 7/04/11, peaked at $110 on 2/24/12 and finished 2012 at $92 a barrel (source: CME Group).
5. TARNISHED – An annual survey compiled by the London Bullion Market Association that was released on 1/06/12 predicted that the price of gold would exceed $2,000 an ounce during 2012. Gold ended 2011 at $1,567 an ounce before peaking at $1,794 on 10/04/12 and finished 2012 at $1,676 an ounce (source: Financial Times).
These are a just a few examples of the recent predictions. A simple Google search on “Stock Market Predictions 2013” shows over 24 million results. So finding a prediction is the easy part. Yet, the sooner an investor realizes that those predictions are often wrong, the sooner that investor can focus on how to have the best possible opportunity to make money in 2013. This can be accomplished by focusing on the items that can be controlled.
Three great areas to focus on this year are cost, cash flow, and reducing risk. If all things were created equal, a portfolio of lower expenses will have more performance at the end of the year. Make sure a detailed analysis is completed on the disclosed and undisclosed fees and expenses on all of the investments. Cash flow is another area an investor can control by investment selection. A large part of the income a retiree needs can be created by investing in income producing assets such as interest paying bonds and dividend paying stocks. A few simple changes could significantly increase the yield and cash flow on a portfolio. Finally, control risk through the proper diversification of the investments. It’s when times are good that investors should look at ways to reduce risk. Use these three areas to focus on this year and our prediction is you may have a much more profitable 2013.
For more information about The Retirement Guys, tune in every Saturday at 1 PM on 1370 WSPD or visit www.retirementguysnetwork.com. Securities and Investment Advisory Services are offered through NEXT Financial Group Inc., Member FINRA / SIPC. NEXT Financial Group, Inc. does not provide tax or legal advice. The Retirement Guys are not an affiliate of NEXT Financial Group. The office is at 1700 Woodlands Drive, Suite 100, Maumee, OH 43537. 419-842-0550.
The S&P 500 Index is an unmanaged index and you cannot invest directly into it.
Diversification is a strategy that is designed to reduce risk. It does not guarantee a profit or protect against all loses.
