Investing and forecasts: the two don't go together and only lead you astray. But why, exactly? Philipp Dobbert, chief economist at Quirin Privatbank and quirion, explains.
Around the turn of the year it's always peak season for forecasts. For example, for the level of the DAX or other stock indices by the end of the next year. Do they help with investing?
No, quite the opposite: they do harm. Because they suggest that something like this can be calculated and that investment decisions can therefore be based on it. Landing a hit with such point forecasts is pure chance. They don't even reliably indicate the direction things will take. That has been shown time and again. The price development can't be calculated in advance.
Why is that?
There are far too many contingencies for that: corporate decisions, interest rate policy, the economy – the list could go on for a long time. With some developments we don't know how they'll unfold. Of some we know nothing at all beforehand. Above all, though, we don't know how the market will react in each case. In 2024, too, there were once again many examples of something happening that had not been expected in that way beforehand. This included, for instance, the impressive performance on numerous equity markets.
But the outlooks are popular nonetheless …
I'm not a psychologist. But perhaps it's because we know the pattern from everyday life. We ask ourselves: where will I be at this time next year? What are my plans, where am I going on holiday? Besides, pretty much everyone would sometimes love to look into the future and gain an advantage from it. But that simply isn't possible, not even with expert knowledge. Forecasts should therefore never be the foundation of investment decisions.
Beyond that, you should be aware: the performance between the first and last trading day of the year, which is so often the centre of attention, is actually irrelevant. If I change the time window only slightly – say, start the calculation on 7 January – the result may already turn out quite differently. What counts for investing is your own investment horizon. On the equity market, that should be much longer than a calendar year.
Outlooks on performance are one thing. What about the economy: can't I at least use well-founded forecasts to identify countries worth investing in?
That doesn't work either. It may perhaps seem so, because with economic forecasts it's somewhat easier not to be completely off the mark. It's just that the range of realistic changes is somewhat smaller. With the DAX, it's fundamentally conceivable that it will stand at 15,000 points or 25,000 points at the end of 2025. That the German economy will suddenly grow or shrink by 10 percent is more than unlikely. Concentrating on particular investment regions on a hunch – or on particular sectors and companies – is always pure speculation. That's far too risky.
Even if I form a picture of the future with plenty of expertise and the necessary data, doesn't selecting particular regions, sectors or companies improve my chances of success?
No, capital market research is quite unambiguous on this! Active selection doesn't systematically lead to greater success, but in any case leads to higher risks. Even when a lot of money is put into analysing data and knowledgeable people concern themselves with the selection, as with classic actively managed funds. Of course it can happen that such a fund has better performance than the broader market in a given year. But that can't be reliably repeated. According to a study by S&P Global from April 2024, for example, 92 percent of active funds in European equities were unable to beat a comparable index over a ten-year period. For funds investing worldwide, it was as many as 98 percent that failed to do so.
And how can I make my investment success more likely?
By aiming for the market return and diversifying as broadly as possible, that is, globally. Then, on the equity markets, a return of 7 to 8 percent a year over the long term and on average is realistic. That's what the past shows. And it's no coincidence. It's down to the connection between the global economy and the equity markets. The economy is geared towards growth, which is why equity markets are directed upwards over the long term.
In our global ETF portfolio, we've optimised the balance of return opportunities and risks as far as possible through diversification. Our investment strategy gets by entirely without forecasts. The portfolio, in a sense, taps into the growth of the global economy. That's far less risky than speculating and hoping for lucky hits.
