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It’s that time of year again when the financial media dutifully rolls out its predictions for the coming twelve months. Where will the Sensex be by December? Which sectors will outperform? What will happen to interest rates? I’ve watched this ritual for over three decades, and I’ve never found much use for it. The predictions are forgotten by February, and if anyone bothered to check them against reality by year-end, the results would be embarrassing for all involved.
The problem isn’t that forecasters are incompetent. Some of them are quite clever. The problem is that the things worth predicting are inherently unpredictable, and the things that are predictable aren’t worth much. Nobody foresaw the pandemic that reshaped our lives in 2020. Few anticipated the speed of the recovery. Policy shifts, regulatory changes and the rise-and-fall of market favourites arrive on their own schedule, never the forecasting industry’s.
I’ve made versions of this argument before. In 2017, I wrote about what investors should do in 2028, making the point that sensible investment advice doesn’t change every year. If your financial strategy requires annual recalibration based on market forecasts, something is wrong with the strategy, not with the forecast.
So instead of predictions, here are a few observations about the landscape as it stands. Useful not because they are “calls”, but because they point to behaviours that repeatedly help or hurt investors.
Retail enthusiasm for derivatives trading shows no sign of fading. Regulators have released hard numbers showing that the vast majority of individual traders lose money in futures and options, yet the attraction persists. The gambling instinct is powerful, and the machinery designed to monetise it grows more sophisticated each year. The safest way to win in this arena is not to participate.
Meanwhile, mutual funds continue to become a mainstream savings vehicle. SIPs are now embedded in middle-class financial behaviour in a way that would have sounded fanciful twenty years ago. The next challenge isn’t convincing people to invest. It’s helping them resist the temptation to complicate what should remain simple. For most investors, three or four well-chosen funds are enough, regardless of what product manufacturers would have you believe.
Insurance mis-selling, sadly, remains stubborn. The gap between what families need and what they are sold is still wide. Term insurance, which most households actually require, continues to be undersold relative to expensive traditional policies and ULIPs that primarily enrich distributors. Incentives haven’t changed, so outcomes won’t either. Don’t fall for the familiar trick of paying too much for too little protection.
What should you do this year? The same thing you should have done last year and the year before.
Map your financial needs on a timeline. Keep the money needed over the next two or three years in a safe, fixed-income investment. Invest long-term money in a small number of diversified equity funds, preferably through systematic plans. Maintain adequate term insurance and health cover. Keep your emergency fund accessible. And avoid speculation dressed up as investment.
This advice is boring precisely because it works. It doesn’t depend on election outcomes, geopolitics, or strategists’ targets. The investor who followed it steadily through 2015, 2020 and 2022 is almost certainly better off today than the one who tried to time markets or chase whichever sector was fashionable that year.
The coming months will bring surprises, some pleasant, some not. Markets will move in ways that look obvious in hindsight and are impossible to forecast in advance. The sensible investor’s response is not to predict better, but to build a portfolio robust enough to handle whatever arrives.
Happy New Year. May your investments be boring and your returns be adequate.
Also read: A pyramid of investing needs
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