Niels Bohr, winner of the Nobel prize in physics and shrewd observer of the human condition, once said: “Prediction is very difficult, especially if it's about the future.
And when the forecasts are made by the investment pundits, that’s doubly true.
The fact is many places we turn for insight about the future are wrong. The irony is that most people – whether advisor or investor – instinctively know not to trust the soothsayers on CNBC commercials or the fulminating blogger listing the 10 hottest stocks of 2013.
Yet we listen anyway, discounting what they say almost automatically. Then in a quiet moment, their perspective delivered with the Super Bowl-like confidence starts whispering:
“You should seriously consider my firm’s top 10 ideas for 2013.”
The more famous the prognosticator, the more likely it will stick in your head.
World Domination – No Problem
A recent study by two UK professors confirmed just how wrong the experts can be when it comes to investing.
Their survey of U.S. fund managers concluded that “excessive levels of overconfidence interfere with sound investment decision-making and thereby diminish future investment returns.” The headline in the Financial Times said it all: “Beware the dangers of overinflated egos.”
Since you’re probably as sick as we are of reading predictions for 2013 from the cocksure, the Wealth Consigliere simply won’t go there.
In our view, there are two types of blogs – those that make predictions and those that stick to the facts. We’ll stay firmly in the second camp.
Nobody knows what will happen in the financial markets or anywhere else for that matter. That’s true, whether you’re managing wealth yourself or for your clients.
Death & Taxes
However, one thing we do know with absolutely certainty in 2013: Taxes are going up. Way up.
Federal incomes taxes are rising. Capital gains and dividend tax rates are reaching skyward. If you live in California, state taxes are at escape velocity. All of these increases are fact.
Depending on your income bracket, that can translate into real money and could have a much larger impact on your net worth than a prognosticator’s “top picks”. Tax planning is not as sexy as "picking stocks" but in 2013 it can be much more satsifying.
What should you do?
We’re not advocating Phil Mickelson’s move out of the California to protest the Golden State’s accelerating tax burden. But we do advocate spending time with your advisors – your wealth manager as well as your accountant, tax attorney or estate planner.
If ever there was a time to structure wealth appropriately for tax purposes, it’s now. With a slew of taxes hitting at once, one of the smartest moves you can make is managing your tax liability. Finding an advisor who is knowledgable on the new tax law is a better use of your time than looking for an advsior that can select the best investments for 2013.
There is an old adage that those who can’t do - teach. We’d like to add to that: People that can’t invest - make predictions.