Wall Street and the business media are filled with experts who will, with only the slightest encouragement, predict the future with enormous confidence. And their self-assuredness is entirely undented by the fact that darn few of them are right even half the time. But in order to be an investor, you have no choice but to attempt prognostications -- many of them.

So for this episode of Motley Fool Answers, hosts Alison Southwick and Robert Brokamp discuss the sorts of pundits and predictions you're best off ignoring and why, then offer up a handful of forecasts that are less than risky, but that are nonetheless valuable for retail investors.

A full transcript follows this video.

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This video was recorded on Jan. 1, 2019.

Alison Southwick: Hey, Bro! Happy New Year!

Robert Brokamp: Happy New Year to you, too!

Southwick: At the time of taping this, things in the world, I would say, are a bit unstable. The markets are unstable. The economy is...I don't know. Does anyone ever really know?

Brokamp: That's a good point.

Southwick: Yes. Does anyone ever really know? Not rhetorical.

Brokamp: But here's the problem. Much of investing and financial planning does rely on a little bit of knowledge, in fact, a little bit of foreknowledge -- in fact, you have to basically make a prediction. When you're buying one stock vs. the thousands of others, you are predicting that that is going to be the better investment. You're deciding to put a little bit more in international or U.S. stocks. You're trying to make a prediction of which is going to be the better bet. The whole point of retirement planning is doing something so that when that time comes, 10, 20, 30 years from now, you're going to have enough money. So you have to make some predictions.

There's a problem. That is, humans stink at predictions. I find it interesting. I'm a bit of a collector of predictions. I even have a folder in my Evernote, because partially I want to see who's particularly good at predictions, partially because when people make predictions, they have some interesting points to make in supporting the predictions. But the bottom line is, generally, people aren't very good at it.

One of my favorite examples I think I've used on the show before was one of those end-of-the-year articles in Businessweek. It was the end of 2007. They asked six highly paid, finely attired Wall Street types how they thought the Dow would end in 2008. At that point, the Dow was a little over 13,000. Every single one of these people expected the Dow to go up to about an average of 15,000. What happened in 2008?

Southwick: Not good.

Brokamp: Not good. It dropped to about 8,000. Forty percent drop. Worst year for the stock market since the Great Depression. It's one of those glaring examples of how you have people who have all the resources that you supposedly could ask for to make these predictions, and they all got it wrong.

There are plenty of studies that have looked over bigger periods of time. One is a study that was done by CXO Advisory, they call it their Guru Grades. What they did from 2005 to 2012, they collected 6,582 forecasts about the U.S. stock market from 68 experts. They didn't even just look at the predictions from that time period, they went back to their archives. The oldest prediction went back as far as 1998. What was the average guru accuracy?

Southwick: Is that actually what they call it? Guru accuracy?

Brokamp: Guru accuracy. Forty-seven point four percent. Essentially a coin flip.

Southwick: A little worse than a coin flip!

Brokamp: A little worse than a coin flip. The most accurate person was right 68% of the time. Still wrong one out of every three times. Worst, by the way, had an accuracy rate of 20%. Yet this person still has a money management firm and still is in the media making predictions. [laughs] It's quite remarkable.

So once again, we're here at the end of the year. You're probably reading all kinds of articles about what 2019 is like. I always like to take this opportunity to look back at some of the predictions from 2018 to see what happened. There were a few that jumped out at me. A couple were highlighted in an article on Market Watch by Sean Langlois. It highlighted two people in particular. One is Ray Dalio. He is considered one of the greatest investors of all time. We talked about that in a previous episode. He runs the biggest hedge fund in the world. And at that time of the year, he said investors are "going to feel pretty stupid if they sit around in cash in 2018." He expected a pretty big rally, partially because of the jolt coming to the economy from the tax cuts. Of course, as we sit here, we are recording this before the end of the year, and the stock market is down for the year. Now, his fund itself has actually made money this year. But again, another really smart guy thinking things are going to be pretty good this year for the stock market, and it didn't turn out that way.

Another is Bill Miller, who was famous for beating the S&P 500 15 years in a row. Unheard of. He got undone with the Great Recession in that his performance tanked considerably, like, horribly. He recovered a little bit, and his record has been mixed since then. He predicted at the beginning of 2018 that we'd have another year like 2013, which is when the stock market went up 30%. Didn't turn out that way.

Now, some folks did get things partially right. Jeffrey Gundlach, who's considered the bond king, he cofounded DoubleLine Capital, runs one of the biggest bond funds out there. Very smart fellow. Predicted that stocks would go up at the beginning of the year and end the year down, which was right. He predicted that Bitcoin had peaked. He was right. He also predicted that one of the best things to invest in for 2018 would be commodities. He was wrong. Commodities actually performed worse than stocks so far this year. You can get some things right, maybe not everything right. That's part of investing. You're just not going to get it all right.

Recently, CNBC's Thomas Franck published an article in which he reviewed the predictions of 13 of the biggest firms on Wall Street, what they were saying for 2018, what they're predicting for 2019. The most accurate for last year was also the most bearish. That was Morgan Stanley's Michael Wilson. He basically predicted that the S&P 500 would make just a little bit of money. Actually, it lost money, but he was still the most accurate.

So, you might ask, what are these people expecting for 2019? He's also, again, the most bearish. He doesn't think the S&P 500 will make much money at all in 2019. On average, these folks think that the market will earn about 15% in 2019.

Southwick: Oh, that's not bad.

Brokamp: It's not bad. We're currently in the longest bull market in history, and they're predicting that we have another year left of it. Will it matter? I think we've already established, we don't think anyone can predict that.

What I thought was most interesting, what I think is most worth paying attention to, is a little bit more pessimism has crept into these predictions, these articles. Every firm often will put out some outlook report, what they see happening in the year ahead. There's much more pessimism in them this year for a couple of reasons that I think are pretty valid. No. 1: The Fed is still raising rates. Probably will slow down, not raise them as much in 2019 as people expected, but still, probably, rates are going to go up. That usually happens. The whole intention is to slow down the economy, to keep inflation in check. That's probably what will happen.

A couple of other interesting things that are generally indicators of a slowing economy, if not recession indicators, one of them being the inverted yield curve. Are you familiar with this at all?

Southwick: Oh, it's my favorite yield curve.

Brokamp: It's your favorite thing.

Southwick: The inverted yield curve is the way to go every time.

Brokamp: [laughs] Except that the yield curve has inverted every time before a recession.

Southwick: So it's a bad thing. It's my favorite bad sign.

Brokamp: There you go. So, basically, you should get paid more to buy a bond with a longer duration than a shorter duration. You should get paid more to buy a 10-year bond than a two-year bond, because you're tying up your money for a longer period of time. That's a normal yield curve. It goes up and to the right. But sometimes, the yield curve becomes flat, meaning you don't really get paid much more to go out further. And sometimes you actually get paid more for a shorter-term Treasury or bond. Usually it's looking at treasuries. And that briefly has just started to happen.

Currently, you actually get paid more to invest in a two-year Treasury than you do for a three- or five-year Treasury. That's generally not a good sign. What people most look at, though, is either the difference between the three-month Treasury and the 10-year or the two-year Treasury and the 10-year. That's still slightly positive. But it's unquestionably a sign that things are slowing down. There had been some false signals with an inverted yield curve, but every recession in modern times has either been preceded by an inverted yield curve, or it happened right around the same time.

Another interesting thing that I read in a report from Schwab was that another indication of a slowing economy is when the unemployment rate and the inflation rate get to be very similar. After a recession, the unemployment rate is high, because people lost their jobs, and the inflation rate is low because businesses had to cut their prices to get people to buy stuff. As the economy recovers, though, the unemployment rate drops, inflation rate ticks up. And they get to a point where they're very close, that's usually not a great sign. The difference between the two now is only about 1-1.5%. So it's certain things like that.

Another signal that I think is interesting now is that household ownership of stocks is near an all-time high. We're about at the same amount as 2007 right before the Great Recession. We're only slightly behind where we were right before the .com crash. The reason it's a bearish signal is because, basically, households have put in as much as they can in the stock market. They don't have as much on the sidelines to put into the stock market. It doesn't mean the market's going to crash tomorrow. It doesn't even mean it's going to crash in a year or two. But it's a sign that people are highlighting as, "It might be time to be a little bit more cautious, a little bit more defensive."

All that said, given that we don't really know what's going to happen, but there are some certain signs on the horizon, here's some predictions that I'm mostly sure I'll be right about.

Southwick: [laughs] Brave man!

Brokamp: No. 1 is: You have to make a prediction. Regardless of whether you're going to be accurate, you have to make some predictions. When that comes to retirement planning, one of the key predictions you have to make is, what is my portfolio going to earn? Generally speaking, most people expect below-average returns. I particularly like Vanguard's annual market outlook. Their guidance for a globally diversified portfolio for stocks over the next decade earns on average 4.5-6.5% per year. I think that's a reasonable assumption. Hopefully it'll do better, but it's better to assume something like that.

For bonds, current interest rate is always the best indicator of future returns, at least for the next five-10 years. Right now, that's about 3%. But there's something a little different going on in the bond market now. If you want your bonds to be particularly safe, you want them to make money when the stock market goes down, you should stick with Treasuries. The more you go into corporate bonds, the more you're taking on a risk that they might not hold up quite as well. For example, during 2008 when the stock market dropped 37%, the Vanguard Intermediate Term Corporate Bond Fund lost about 7%. Not horrible, but you lost money.

But there's some evidence that corporate bonds are actually even riskier now than they were then. That's because the bond market is broken up into basically two big segments. Investment grade means they're rated BBB or above by Moody's and S&P and Fitch and those folks. BBB and above is investment grade. Below that is speculative grade, called junk. Fifteen, 20 years ago, when you looked at the whole investment grade market, maybe 25-30% of it was BBB, basically a notch above junk. Today, half the investment grade market is just a hair away from junk. The corporate bond market nowadays is riskier than it's been in the last 10, 15, 20 years. As you look at your portfolio, if you're choosing to invest in bonds or bond funds, you have to take that into account. Take a look at how much exposure you have to the corporate bonds. If you look at a bond fund, you can look at Morningstar and see its average credit quality. If it's BBB, close to that, you've got a pretty risky bond fund. You just have to be prepared that it probably will go down if and when we do go into a full recession.

Southwick: You'd better beware. I need another B in there. Nuts!

Brokamp: That was good!

Southwick: No, it wasn't.

Brokamp: As for cash, as we've talked about before, these days, you should be able to earn 2%, you just have to put in a little effort.

Put that all together. If you have a portfolio of cash, bonds and stocks, you should only assume you're going to be earning 4-6% a year as you do your retirement plan contributions. Or, it could be, also, if you're calculating whether you're saving up for college or something like that. I think that's a reasonable expectation.

No. 2 prediction: Saving more increases your chances of success. I know that's not very exciting. [laughs]

Southwick: Way to go out on a limb there, Bro. Controversial hot take from Robert Brokamp.

Brokamp: The bottom line is, there's nothing that will help you through a recession or economic downturn than having more cash in the bank or more in your portfolio. The good news, as we talked about before, in 2019 retirement, account contribution limits go up. Nineteen thousand dollars for 401(k)s, with another $6,000 if you're 50 or older. IRAs go to $6,000 with another $1,000. Take advantage of those higher contribution limits and save more.

No. 3: Your tax bill or your refund will be very different than the previous year. This was the first year of the new tax law. If you didn't change anything, you're going to get a bigger refund, chances are. Though there is a good 10-15% of people that are actually going to have a higher tax bill. They're either going to get a smaller refund or they're going to owe some money. It's particularly important this year to get your taxes done early, to know your situation. If you're getting a refund, get that money as soon as you can. If you owe money, you don't have to file your taxes then. You can wait until April 15th. But you have to start building up that money, so you have that cash on hand. It's also important to know, "This is the tax situation." Taxes are not going to change very much in 2019 unless you do something different. It's better to start earlier in the year to adjust your withholding. If you're going to get a refund, you get that money sooner. If you're going to owe money, you want to make sure you adjust your withholding, because if you owe too much, you'll have to pay some sort of penalty.

No. 4, another boring one: Paying down debt is a guaranteed winner. With interest rates going up, debt is more expensive. The interest rates on credit cards are at all-time highs now. It's crazy.

Southwick: All-time highs? Like what?

Brokamp: Like 17-18% for a regular card. But then, when you get into the store, it's like 25%.

Mortgage rates have also gone up. Auto loan rates have gone up. It's better to pay that off. It's a guaranteed winner. It also gives you more flexibility. One of the issues, what happens during a recession is, if you're retired, your portfolio goes down. If you're working, you might lose your job. The less debt you have, the more you could weather that type of storm. If you're retired and your portfolio goes down, one of the best things you could do is leave your portfolio alone. And if you don't have a lot of debt, you have a lot more flexibility with your budget. If, on the other hand, you have a credit card bill, a car bill, and a mortgage, your portfolio's down, you can't hold off. You have to pay those bills.

Southwick: In the priority of: credit card, car, mortgage.

Brokamp: Right, exactly. No. 5: You're always better off looking for ways to enhance your human capital. That is basically your value to your customers. Everyone has a customer. Obviously, if you're self-employed, you have customers. But even if you work for somebody, you have customers. Your boss, the people who run the company, your colleagues. I think it's important to always be looking for ways to show that you are valuable to the people who are your customers. What happens during a recession? No. 1: People either get laid off or employers aren't as generous with raises. The more value you can demonstrate to the people you work with or the people who are your customers, the more likely you're going to be better off.

Southwick: What are you intending to do to improve your human capital in 2019?

Brokamp: Honestly?

Southwick: Yes! No, I want you to lie to me.

Brokamp: [laughs] I've actually begun a few discussions with people about how I can increase the engagement in the services I work on at The Fool, particularly the Rule Your Retirement service. I've had a few meetings about that. I have another meeting on Friday. What are the things we can do to make it more valuable to the people who subscribe?

Southwick: Cool! I'm glad you had an answer. It would have been awkward had you not. So when you were looking at all these prognosticators, were there many that were like, a broken clock is right twice a day kind of thing? Where it's like, "I'm the permabear. I'm the one who always thinks the market is going to crash at any moment."

Brokamp: Right, there's no question. One guy is Jon Huntsman, who I enjoy reading. Super-, super-smart guy. Became famous by being very bearish before the Great Recession. Of course, the market did drop, so he was right. He's generally -- not always -- been very bearish since then, and that has not gone well.

Southwick: It's been a tough 10 years if you're a bear.

Brokamp: Yeah. In November he predicted that the S&P 500 during the next downturn is going to drop to below 1,000. Keep in mind, right now, it's about 2,600. So he's talking --

Southwick: More than half.

Brokamp: Right. So I don't know if that's going to be right. But there are those people. There are people who still think inflation is going to go nuts. I read a few predictions of where people think gold is going to go to $5,000 an ounce or something like that. Right now it's $1,300. But they've been saying that since the Great Recession because, as you may remember, with all the stimulus from the Fed, they were saying it's going to spark outrageous inflation, and the best place to be is gold. Actually, gold since 2011 is down 50%, something like that.

So you certainly come across that. That's an important distinction as you read these things. But even with Jon Huntsman, he's obviously been wrong, but so much of his analysis is so enlightening because it brings so much market history. Even if someone doesn't get the bottom line right, you can still learn a good bit from reading their analysis. In the end, you have to make some sort of prediction. And in your mind, there has to be that little bit of possibility. What if he's right? What if the market goes down? We did have the Great Recession at one point. We did have the Great Depression, where stocks went down 80%. There has to be that part in your mind, that that could happen. Have some portion of your portfolio that will do at least OK in that scenario.

Southwick: Yay! 2019! It's going to be a great year!

Brokamp: It is going to be a great year.

Southwick: It is going to be a great year, even if it's not a great year, because we're all here together. We've got each other. Something like that?

Brokamp: Because I love you guys. I really love you guys!

Southwick: Aww. That's so great, slugger! Thanks!

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