What You Need To Know About Predictions This Year

Hint: we call bullsh*t.

We’ve been bombarded by self-proclaimed ‘experts’ telling us what’s going to happen this year. A lot of them are trying to get their mitts on more of your moolah with clickbait-y headings like 7 Ways To Become a Millionaire in 2017, or 15 Unknown Stocks to Win Big in 2017. Whether it’s property markets, stock markets or interest rates, somebody’s always got an insider tip.

Our expert insight? None of them have any idea what will happen.

Almost no one predicted Brexit or Trump, and there is zero evidence that anyone can guess which way the stock market will go.

Here’s the trick: humans biologically crave certainty, and we all like free money. We also get FOMO. It’s how the property market gets so hot. People start believing buying property is a one-way sure bet, plus they’re afraid to be late to the party. A lot of ‘experts’ have something to gain by stoking the fire.

But if we aren’t careful, it’s a slippery slope to unpleasantville. For us, that is. You know, the ones whose hard-earned cashola it is.

Last year, the Financial Times reported that 86% of active managers underperformed. What’s that mean? That 86% of fund managers, the people who are paid specifically to be the guns in picking investments, didn’t beat the index (like the ASX200 or S&P500).

Active investors pick stocks that they believe will go up in value. But if they’d just bought a bit of everything in the index instead of picking a few they thought were better than the rest, 86% of them would have been better off.

Remember these are the highly trained, highly educated experts who have the latest mathematical tools. If most of them can’t beat the index, pretty sure that pundit in the press, or your mate who thinks he’s a genius stock-picker can’t either (*cough* overconfidence *cough*). Not in the long run anyway. It’s a bit like gambling — sometimes you’ll get a lucky streak, but most of the time the house will win.

We prefer to think about risks, not forecasts. That way we stay open to new information, rather than being prone to confirmation bias (looking for data that support our pre-existing opinions), optimism bias (thinking things will be better in the future) and the illusion of control.

There are three key risks we’re watching:

  1. Trump, as we covered in this week’s carrot.
  2. China. Debt is high and the currency is weakening (a bad combo). Add a sprinkle of Trump-related tension and the mix could be potent. Remember China is a major growth engine for the rest of the world, so their stumbling could mean hard times for all of us.
  3. Higher US interest rates. The world has become used to cheap debt in the last 10 years, so what will happen if the US Federal Reserve makes borrowing more expensive? Not only will it squeeze Americans with debt, it will also put pressure on other countries. Emerging markets like China and India have been the major source of growth for the last decade, so if they slow down, we all slow down.

No illusions here, none of us can control these risks (unless Trump’s reading this👀). But here comes the moral of the story. If you’re on top of your finances, you don’t need to worry as much about all this stuff.

The best way to think about the year ahead given these pretty major risks, is to ask yourself if you’re prepared for the unexpected. Do you have a buffer in case your phone dies, your lease expires or you need to look for a new job? These kinds of events will impact your happiness way more than if the stock market goes up or down a bit, unless you’ve piled everything you have in there.

There are three main elements to your money:

Income - spending = savings.

Income you can influence by pushing for that pay rise, by training up, by moving to a better job. But with spending, you can make direct and immediate changes. So while you ask for that raise, figure out if/how you can spend a bit less, and squirrel that buffer away.

Yep, it’s easy for us to say, ‘be on top of your money’. And we get that it’s way easier said than done. Banks and finance companies often don’t make it easy to understand, and everywhere we look we’re encouraged to spend spend spend!

That’s why we’re working on it. We’re on a mission to make it as easy + joyful as humanly possible to get on top of your money.

We’ll keep you posted. And in the meantime, if you have anything you want help with, holla at hello@carrots.money 💜

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