Swedroe: Last Year’s Financial Predictions

A look at the financial predictions for 2014 and whether they proved true.

Reviewed by: Larry Swedroe
Edited by: Larry Swedroe

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. 


Fund2014 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



Investors who moved to cash to protect themselves against an overvalued market paid a steep price. Score: 1

The fourth sure thing is that, after the continued injection of fiscal and monetary stimulus into the economy, we should experience a sharp rise in inflation. The November Consumer Price Index (CPI) report, released in December, showed a year-over-year increase in the Consumer Price Index for All Urban Consumers (CPI-U) of just 1.3 percent. Score:1

The fifth sure thing follows from the fourth. It's that rising inflation should lead to a falling dollar. The dollar index closed 2013 at 80.29. It finished 2014 at 90.64. Score: –1

Again, the sixth sure thing follows from the fourth and fifth. It's that gold should rally in 2014, reversing the sharp fall it had experienced. Gold closed 2013 at $1,205. Gold ended last year at $1,184. Score: 1

The seventh sure thing is that the municipal bond market should be hit both by interest-rate increases and default problems, keeping investors away. We've seen neither rate increases nor default problems. In fact, Vanguard's Short-Term Tax Exempt Fund (VWSTX) returned 0.65 percent in 2014, its Intermediate-Term Tax Exempt Fund (VWITX) returned 7.25 percent, and its Long-Term Tax Exempt Fund (VWLTX) returned 11.08 percent. Score: –1

The eighth sure thing is that economic recovery will continue down its tepid path. The Philadelphia Federal Reserve’s Survey of Professional Forecasters predicted GDP growth of 2.6 percent in 2014. The revised first quarter figures showed the GDP fell 2.1 percent.

However, the September revision to the second-quarter growth rate raised the estimate to 4.6 percent. And the latest figure, for the third quarter, indicated GDP growth of 5.0 percent. Despite the strong snapback, we’ll call this an accurate forecast. Score: +1

The ninth sure thing is that, after defying the gurus in 2013, the volatility of the market will rise. The VIX ended 2013 at 13.72. The VIX closed the first quarter of last year slightly higher at 13.88, but it decreased significantly to close the second quarter at 11.57 after falling steadily for most of May and June. And it remained steady into early September.

However, the last three weeks of the month saw an increase in volatility. The VIX closed the third quarter at 16.7. While it closed on Dec. 30 at 15.92, and it traded at around that level on the final day of the year, at the close it had jumped to 19.2. We'll put this one in the plus column. Score: +1

Our tenth and final sure thing is that active management will beat passive management in net returns. Despite an overwhelming amount of academic research to the contrary, an astonishing 75 percent of advisors believed this to be true, according to an InvestmentNews report from January 2014.

The midyear SPIVA report showed that for the 12-month period ending June 30, 60 percent of large-cap managers, 58 percent of midcap managers and 73 percent of small-cap managers underperformed their benchmarks.

And Jason Zweig, writing in the Wall Street Journal, reported that as of Dec. 19, more than 79 percent of U.S. stock funds had failed to beat their market benchmarks for the year, compared with an average of 59 percent of funds over the previous 25 years. Score: –1

Before tallying up the total, it's worth noting that perhaps the biggest event in 2014, the collapse in oil prices, was a huge surprise to not only the market but also for two of the market's biggest-name "gurus." John Paulson and Carl Icahn each suffered major losses as a consequence of their bets on energy.

Our final score for the sure things of 2014 is three correct predictions and seven wrong ones. It's pretty apparent that even the "sure" things didn't turn out to be sure. In fact, we've been providing our "sure things" scorecard since 2010, and not once has a majority of them occurred. Here's the year-by-year breakdown:

  • 2010: 1 right/4 wrong
  • 2011: 3 right/5 wrong
  • 2012: 2 right/3 wrong
  • 2013: 1 right/6 wrong
  • 2014: 3 right/7 wrong

The academic and peer-reviewed research indicates that past isn't prologue and there are no good forecasters when it comes to performance. Keep this in mind the next time you're tempted to give credence to some guru's forecast instead of adhering to a well-thought-out and long-term financial plan.

Larry Swedroe is the director of research for the BAM Alliance, a community of more than 150 independent registered investment advisors throughout the country.



Larry Swedroe is a principal and the director of research for Buckingham Strategic Wealth, an independent member of the BAM Alliance. Previously, he was vice chairman of Prudential Home Mortgage.