Many wise people have uttered the following phrase, “It is difficult to make predictions, especially about the future.” We all know that, and then most go ahead and try to do it anyway. I feel like this needs to be a warning attached to every important investment document, next to the SEC’s warning that “Past performance is not indicative of future results.”

Interest rates are a notable example. We can’t predict them any better than we can predict stock market returns, but that doesn’t stop people from trying. We started this year with the consensus belief that interest rates would fall. Some thought that the Fed would cut rates seven times this year! We’re in June and we haven’t seen a Fed rate cut.

By the way, the Fed isn’t any better at forecasting interest rates than anybody else. Their dot plot is notoriously unreliable, and yet they still try.

Let’s take a step back and acknowledge that we can’t predict interest rates. It will help us make good financial decisions. For instance,

  1. We will stay diversified. Both short-term bonds and intermediate-term bonds pay a nice interest rate today. Having both gives you options because we don’t know which ones will do better this year or next year. Don’t overcommit yourself one way or the other.
  2. We will budget for continued high interest rates. I am buying a new home and will be taking out a mortgage over 6.5%. I hope interest rates drop in the next few years and I get a chance to refinance, but that’s not guaranteed to happen. I’m budgeting for interest rates to stay high. Any improvement is a bonus. I suggest you do the same.

I could go on, but you get my point. Repeat after me, “It is difficult to make predictions, especially about the future.”

About the Author:

John has more than ten years experience as an Investment Advisor. He focuses on devising and maintaining portfolios that meet individuals’ needs, investment research, and investment strategy. John has been recognized as a “FIVE STAR wealth manager” by Twin Cities Business Magazine 2016-2024. He is a CFA charterholder and CERTIFIED FINANCIAL PLANNER™ Professional.

Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. CTW gathers its data from sources it considers reliable. However, CTW makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.