Table of Contents

1. Introduction
2. Article Discussion
3. Question and Answer Session
4. Closing Remarks

Introduction

Madison: Hello, everyone, and welcome to the 19th episode of Not Just Numbers, Honest Conversations with a Financial Advisor and Lawyer. I am Madison Demora, and I am here with Mike Garry. Mike is a financial advisor and a CFP and the founder and the CEO of Yardley Wealth Management. He is also an estate planning lawyer, and his law firm is Yardley Estate Planning. Hey, Mike.

Mike: Hey, Maddie. How are you?

Madison: I’m great. How are you?

Mike: Good. Good.

Article Discussion

Madison: All right. So, today, we are talking about an article you wrote recently in the Yardley Living magazine.

Mike: Yep.

Madison: So, Yardley Living magazine is a local magazine that Mike is a part of. And I believe you wrote an article, was it titled “Don’t Listen to Predictions, Do This Instead”?

Mike: Yep. Don’t listen to the pundits, maybe.

Madison: Okay. What was the article about, Mike?

Mike: So every year at this time in December and January, the press is filled with people who are experts in fields saying what they think is going to happen for the year, whether it’s style or cooking or clothes. But in the financial world, you get a lot of people out there saying what they think is going to happen with the stock market or interest rates. And at least in our field, those guesses are often wrong, sometimes horribly wrong. And I don’t think it makes any sense to listen to those predictions. I think that there’s checklists of what you can do in your financial life. And so in the article, I laid out a couple of things that make sure, like, hey, if you have these, make sure you have good answers for all these questions. And if you do, you know you’ll be in pretty good shape. Whereas if you listen to pundits and say, like, I’m going to guess and buy stocks or sell stocks or redo loans or something based on what they think is going to happen with interest rates, well, you don’t know if that’ll work or not. Last year, because one of the issues in those predictions is there’s a lot of something called recency bias. So since 2022 was a bad year for stocks, all their predictions predict that 2023 would also be a bad year, and it wasn’t. It was led a lot by the Magnificent Seven, and they had an outsized input on the S&P 500. But even without those, the markets would have had a good year anyway. But nobody predicted it because the year before was bad. And so now that last year was a positive one, most of predictions now are, oh, it’s more of the positive. Well, it could be. The years are positive more often than they’re negative, but we don’t know. It’s just a guess.

Question and Answer Session

Madison: Okay. You wrote a post where you said instead of listening to the pundits make predictions, you should ask yourself a list of questions and see how comfortable you are with the answers. Would you like to go over that now?

Mike: Sure.

Madison: Okay. So is my spending in line with my income, investments and, or pension and Social Security?

Mike: Sure. Hey, the big, big question for everybody, are you spending too much? And if you are, you know, you have to look at ways that you could cut it and bring it, bring it back into line. Or if you’re young and it’s possible, can you earn more to make up for that? But you should have a sense, like every month is your account, your savings and checking accounts, are they going down a little bit? Are they going up a little bit? You know, you, you should know. And so take a look at it and figure it out.

Madison: And it’s a good time to start that, right? New year, new goals.

Mike: Yeah, everybody’s motivated for the new year. You know now you could figure out what all of your spending was in 2023, all of your income was and see how they match up. You know, if you’re retired, is it an appropriate amount that you’re taking from your accounts or if you have Social Security and pensions, is your spending in line with what you’re getting from those? If you’re working, are you saving enough? Do you know how much you should be saving? And are you doing that? And getting the answers to these questions is much more important than whether you think the Dow is going to hit 36,000 or 29,000.

Closing Remarks

Madison: Okay. Alrighty. Well, that was a nice checklist for the beginning of the year. Help guide some people.

Mike: Well, thanks, Maddie.

Madison: Absolutely.

Mike: It’s not comprehensive, but it’s a real good place to start.

Madison: Yeah, absolutely. So those were questions, the questions I just asked you, those were questions that were actually in your article. So I am going to go in with some questions that I have about your article.

Mike: Great.

Madison: Alrighty. So what is the main argument against relying on predictions in the financial market?

Mike: We have, the main argument is you have no idea if they’re going to be right or not. And so you would have a better idea of what’s going on in your life. And you could predict what’s going on with much greater certainty than somebody saying, hey, I think the Dow is going to go up 10% this year. Even if it does, what does that mean in your life? It probably means nothing in your life. So take the predictions with the grain of salt.

Madison: Yep. Alright, so this is the question I’m actually really interested in, so in your opinion, why do financial experts continue to make predictions despite the acknowledged inaccuracy? What might be their motive?

Mike: All right, so couple, great question, Maddie. So I don’t know that they would acknowledge the inaccuracy. Somebody’s going to go make predictions in the financial markets. Why do they want to do it? Because they want to get press coverage. They want people to think that they’re smart and that they know more than other people and that if they’re an expert, then more people will buy their fund or read their book or watch their show or whatever it is. They’re trying to get attention just like everybody does say on social media, you know, they’re in a crowded world and they want to be seen as the expert or the person who did this. And the reason they do that is because there are still headlines every day saying, oh, the guy who predicted the 98 long term capital management crash says that now is a terrible time to be in stocks. That happened 25 years ago. Guys probably been wrong 100 times since then, but they get that one time that they’re right and people will go to them over and over and over again even though they could be a litany of them wrong afterwards. Somebody compiled a real good one in I wish I could find it. But it had predictions after the 2008 crisis. 2008, 2009, great financial crisis. They had monthly snapshots of these people saying how bad it was to get in the market, what a mistake it was. It was premature. The bear market didnt last long enough and it was all well known guys like Bill Gross from Pimco. A lot of the permabears were in that. But anyway, Mark went a long time before having a big downturn after the 2008 2009. And it’s 8, 10 times higher than it was back then. So those pundits were wrong, horribly wrong, but they still get quoted because they were right one time. So we have a system where if you do get lucky one time or you’re just right one time, it doesn’t matter if you’re wrong the next ten times, people will still say, oh, I’m going to ask him because he was right that time. That makes no logical sense. It makes no logical sense.

Madison: Yeah. Alright, so what are the potential drawbacks of relying solely on predictions for financial decision making?

Mike: Yeah, because it doesn’t mean anything unless you’re only worried about something being at a certain point in time in the future. So if you’re guessing whether some bet on a futures market or stock futures or whatever the futures would be, I mean, there’s no other reason that it would matter, right? Cause I’m in my fifties, i’ll be investing for a long time, hopefully, it doesn’t matter if the market goes up 10% this year or not, or if it goes down 10%, it’s not gonna change anything. You know, people need to be more concerned about making sure all of their ducks are in a row and their personal stuff is taken care of rather than trying to guess what’s gonna happen.

Madison: So what does the statement mean, “a year is the short run” in the context of financial planning?

Mike: Yep. Year goes by pretty fast for most people most of the time. Right. You’ll have worked here two years next month. Right. That’s pretty quick, went by fast. And a year in a lifetime, if life expectancy is in the seventies or eighties, one year is not a big amount. Right. It’s a 1 or 2% of most people’s lives. So it’s the short run.

Madison: Yeah. Okay. Do people often prioritize short term market predictions over long term financial planning? What could be the reason behind this behavior?

Mike: The answer is yes, they do. And the reason is instant gratification, we want to know what’s going to happen. If you feel like you know what’s going on, at least the more certainty, whereas it’s hard to plan long term. Right. Like, what, what is long term? What does that mean to you and what’s involved in it? It’s hard, you know, like, and things change and makes a lot of long term planning, you know, not as relevant as it might have been. And it’s harder. You need to do more thinking. You need to really prioritize, assess your situation, and figure out what you need to do. Whereas if, like, hey, if I think the stock market is going to go up, I’m going to put some money in it. It’s relatively short. It’s more of like a bet than it is like a plan. Like going to the casino. You just don’t have those, like, jingling lights. Although, Robinhood, you probably do have those jingling lights on it now.

Madison: Yeah, I feel like we’ve said that before a few times in past episodes.

Mike: A lot of this stuff is not new or different. It’s a lot of the same principles. And, uh, just trying to get people’s attention with them. That’s all.

Madison: Yep. All right, I am out of questions. Um, is there anything else you wanted to add to this episode?

Mike: No. Thanks so much, Maddie.

Madison: Absolutely. For more information on Yardley Wealth Management or Yardley Estate Planning, you could visit our websites at yardleywealth.net and yardlyestate.net. You can also follow us on socials at Yardley Wealth Management this podcast has been produced by Madison Demora and Mike Garry with technical and artistic help from Poe Productions.