Let us not believe in PREDICTIONS in personal life nor in financial life

A turtle who goes by the name, Big Head is predicting results of the 2014 FIFA World Cup matches & in 2010 it was Paul the Octopus. Most newspapers have daily and weekly predictions for star signs which many read religiously. We have experts and analysts who predict how the stock markets will do. This also has many takers. The future is always a mystery which we want to unravel before it comes. We humans like certainty and since the future is filled with uncertainty, we try to predict what will happen or want to believe predictions that “experts” make.

prediction

But believing in predictions is not such a good idea as –

  • One can never be sure if it will happen for sure.
  • If you start taking predictions seriously, you will stop believing in yourself.
  • Personal Predictions are based on opinion and hope and little on real facts. Moreover it is coloured by how one perceives the prediction. Therefore predictions can go wrong.
  • Expert and Analyst predictions are never towards one direction. There are always underlying meanings and we end up believing what we want to believe.

Prediction is not a good habit in your financial life as well

  1. Personal Finance is a matter of proper research, planning, executing the plan and comparing results with the goals to be achieved. It also has a significant impact in your life which means there is not much room for prediction.
  2. If you have just started working, you cannot predict your career path or your retirement age nor the corpus that you will need then magically. If you have a child, you cannot predict what he/she will be interested in 15 years from today or what she would want to study and how much it would cost.
  3. Your financial standing also depends on external variables like the economic growth of the country, shape of the sector that you are working in, global economic parameters etc. There is not much scope for you to know how these variables will stand 5 or 10 years from now.
  4. You will not be able to know the exact value of all your investments in the future. Stock prices may go up or down. The value of real estate and gold also change. These can lead to your net worth value go up skyrocketing or fall down.
  5. Just like tossing a coin, knowing next multibagger stock is not possible.

Carl Richards – Why predictions are so tempting?

1) It’s fun. As social animals, we love being in the know and place value on being the one to break the news.

2) It’s genetic. Our natural instinct to survive makes us sensitive to the world around us, and we’re constantly trying to predict dangers lurking in the bushes. We rely on predicting and forecasting for almost every decision we make, including the weather, our commute time and even what to wear based on what we predict others will think or say.

3) We want control. We all want to control our environment and our futures if we can. It’s very difficult to accept that much of what goes on is random and that the only constant seems to be change.

4) We forget quickly. Many of the currently famous market forecasters have been wrong for years, but we quickly forget their incorrect forecasts from days gone by and cling to the one big call they recently got right.

This does not mean you should not plan for the future. You should think of the scenarios in the future and plan your finances. You should do the basic things like

  • Spend less and save more.
  • Invest your money and let it work for you instead of it lying idle in lockers and bank accounts.
  • Diversify your asset allocation. Invest in a variety of assets so that risks are minimized and returns are optimised.
  • We consider those who make money using investment skills as lucky. Financial Planning and Investing are is not only about luck. You have to make informed decisions and work on your plan regularly till you are skillful in it. Once you get the requisite skills, you will be lucky as you will be making intelligent investment decisions.
  • You have to make your financial plan and execute the plan. Along the way, there will be events due to which you would need to alter the plan and you should be ready for it. Meanwhile you should remember that money is not everything and enjoy all aspects of life.

I believe that you should work on your financial plan and not believe much on predictions. This will definitely be more beneficial from a personal and financial perspective. Must share your experience with predictions & people who claim that they can gaze into future.

Print Friendly

Subscribe for TFL Weekly Guide

Do you believe in - An apple a day keeps the doctor away? Similarly, TFL Guide is your weekly apple, keeping you financially fit. Subscribe now and get Basics of Financial Planning E-Course FREE.

{ 2 comments… add one }
  • Tohid Surti June 19, 2014, 12:11 PM

    Hemant,
    Nicely articulated and structured article as always from you. In today’s world predictions are becoming part of assumed reality more and more due to the snowball attack of news and social media from all channels. This is causing stress due to wishful thinking where as the reality is far from the news and media hype.

  • sandeep sharma September 15, 2016, 8:35 AM

    Hemant ji, very good and real explanation with interconnection of skills and luck. Yes, indeed one should prepare a dreamfile and become devoted to fulfill the same.

Leave a Comment