Swedroe: Last Year’s Financial Predictions

January 08, 2015

At the start of each year, I compile a list of predictions that financial gurus and industry experts tell us are a "sure thing." And each year, I track how many of these predictions actually come true.

This marks our fourth and final quarterly review of some consensus financial predictions that pundits in the financial media forecast as certain to occur in 2014. Keep in mind that if the following predictions were really sure things, all—or at least most—of them should have happened.

As is our practice, we'll give a score of +1 for a forecast that came true, a score of –1 for a prediction that turned out to be wrong, and a score of 0 for one that was basically a tie.

Our first sure thing is that, with the Fed announcing its plan to end quantitative easing, interest rates would rise. Thus, investors should and would limit bond holdings to the shortest maturities.

Well, the Fed did announce the termination of its mortgage and Treasury bond asset purchasing program at the end of October. Vanguard's Short-Term Bond ETF (BSV | B-67) returned 1.16 percent for the year, but its Intermediate-Term Bond ETF (BIV | B-53) returned 6.86 percent and its Long-Term Bond ETF (BLV | C-99) returned 19.73 percent. Score: 1

The second sure thing follows from the first. With the Fed finally tightening monetary policy—along with the predicted following rise in interest rates—emerging markets equities would perform poorly. The Vanguard Emerging Markets ETF (VWO | C-84) returned 0.42 percent in 2014, underperforming the 13.51 percent return of the Vanguard 500 ETF (VOO | A-97). Score: +1

The third sure thing is that with the CAPE at 26.17 as we entered last year, about 60 percent above its long-term average, stocks should be avoided. The table below shows the returns of Vanguard's Total Stock Market Fund, as well as the returns of its small, small value, large value and REIT funds. 


Fund 2014 Return (%)
Vanguard Total Stock Market ETF (VTI | A-100) 12.43
Vanguard Small Cap Index ETF (VB | A-99) 7.37
Vanguard Small Cap Value ETF (VBR | A-100) 10.39
Vanguard Value Index ETF (VTV | A-100) 13.05
Vanguard REIT Index ETF (VNQ | A-85) 30.13



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