Legendary investor Peter Lynch once gave the following advice to those who dabble in the stock market: “If you spend 13 minutes a year on economics, you’ve wasted 10 minutes.”
Lynch was making the point that investors should limit themselves to focusing on finding good companies at attractive prices. Like an even more celebrated stock picker, Warren Buffett, Lynch believes that it is impossible to gain an edge by predicting the future course of the economy or other major events.
But that sure doesn’t stop a lot of people from trying.
The world is full of experts just itching to tell you what the future holds for you and your money. Invariably, these predictions turn out to be useless at best and counterproductive at worst.
The graveyard of failed financial predictions stretches on, mile after mile. That was true a century ago, and it’s still the reality today. Here are some financial predictions experts made over the past decade that flopped big-time.
Inflation will be ‘transitory’
This might be the most famous failed prediction on this list.
As prices began to climb in the wake of the COVID-19 pandemic that hit in 2020, two of the smartest people in Washington, D.C. — Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen — both insisted that the latest bout of inflation would be “transitory” before quickly fading into history.
Everybody reading this article knows what came next: an extended period of inflation that was the worst the U.S. had seen in four decades.
Yellen has since said she regrets using the “transitory” language. In late 2021, Powell said the Federal Reserve was officially retiring the word itself.
A post-COVID recession is inevitable
For the past several years, a large percentage of economists and other wags have insisted that a recession is right around the corner. They repeatedly opined that the Federal Reserve’s recent and dramatic rate-hiking campaign made an economic downturn virtually inevitable.
That left the rest of us waiting. And waiting.
It’s probably not fair to pluck one economist out of the chorus of doom and put him in the spotlight. But we’ll do it anyway.
Writing for MarketWatch, Gary Smith recounts:
“In an August 2022 CNBC interview, Steve H. Hanke, a Johns Hopkins University economics professor, predicted: ‘We’re going to have one whopper of a recession in 2023.’ In April 2023, he repeated the warning: ‘We know the recession is baked in the cake,’ he said.”
Smith goes on to write: “Many other economists also anticipated a recession in 2023. They were wrong.”
Thus far, the economy has not contracted. Today, far fewer money pros foresee a looming recession.
Housing prices will fall in every state due to tax reform
For decades, tens of millions of homeowners used the mortgage interest deduction to lower their tax bill. This deduction allows you to write off the cost of the interest on your home loan.
When Congress passed the Tax Cuts and Jobs Act of 2017, things changed dramatically. The legislation nearly doubled the standard deduction. As a result, far fewer people itemize on their tax return — in fact, about 88% now take the standard deduction. That means these folks no longer can take advantage of the mortgage interest deduction.
One would think that losing the ability to use the mortgage interest deduction would make buying a house much less attractive, and that, in turn, home values would contract from coast to coast. The experts at the National Association of Realtors certainly anticipated that.
As the legislation was being crafted in Congress, the NAR predicted that home values would fall in every state. As Forbes reported at the time:
“According to the NAR, homeowners in New Jersey, Connecticut, Illinois, New Hampshire, Maryland, Rhode Island, Virginia, Wisconsin, Georgia, Minnesota, New York, Ohio, Pennsylvania, and Texas (in order of sharpest decline with New Jersey most impacted) would see the sharpest dives. Estimated drops range from 10% on the low end to 21% at the high end.”
Flash forward to 2025: If you look hard enough, you might discover a community somewhere in America where housing prices have slipped a bit since the NAR made its pessimistic forecast. In the rest of the country, home prices have shot to record highs and show few signs of falling anytime soon.
Stocks will average just 4% returns annually for a decade
The late John Bogle was a national treasure. As the founder of Vanguard Investments, he introduced the index mutual fund to millions of investors. With that single act, Bogle — who died in 2019 — dramatically improved the financial well-being of countless folks in America and throughout the world.
But Bogle’s enormous contribution to investing didn’t make him a better soothsayer than anyone else. In early 2017, Bogle crunched the numbers and delivered the bad news: Investors should expect 4% annual returns in the stock market over the next decade.
As it turned out, the S&P 500 index mostly boomed over the succeeding eight years, smashing through Bogle’s low ceiling on its way to one of the great bull runs in recent stock market history. Here is the breakdown:
- 2017: 21.61%
- 2018: -4.23%
- 2019: 31.21%
- 2020: 18.02%
- 2021: 28.47%
- 2022: -18.04%
- 2023: 26.06%
- 2024: 24.88%
To be fair, there is still time left for Bogle’s prediction to come true. But we all better hope it doesn’t, because it would take an epic stock market swoon for Bogle to be in a position to offer a posthumous “I told you so” from the great beyond.
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