Advisors must address the futility of forecasting.erhui1979/iStockPhoto / Getty Images
A year ago, we in the financial services industry were combing through our spreadsheets and pecking at our keyboards, hard at work to sort out whether 2025 would be a good year or a bad year for investors.
The consensus was that with Donald Trump back in the White House, the U.S. stock market would flourish just as it had in 2017, that the U.S. dollar was on the up, and that it was almost foolish not to be overweight U.S. stocks after a decade of outperformance.
How did that turn out?
Approaching the end of 2025, it looks like the U.S. stock market will end with what anybody would call a “good” year, with returns in the mid-teens for the S&P 500 as of the time of writing. Nothing to complain about.
Except that much of the rest of the world did better.
Remember the markets nobody wanted to own? The MSCI World ex-USA Index has gained around 30 per cent year to date and the S&P/TSX Composite Index is up more than 25 per cent.
We can forgive the forecasters of a year ago for having a tough read on 2025. So much went on, including annexation threats, Trump family meme coins, a 43-day U.S. government shutdown, and whatever it was that Elon Musk was doing in the White House.
Who could forget Mr. Trump’s “Liberation Day” tariffs on everyone (even the trade-cheating penguins on two remote Antarctic islands)? After the S&P 500 dropped 12 per cent in four days, the U.S. abruptly un-liberated itself, walked back many of the tariffs, and the stock market raced to regain its losses and reach new highs.
With everything that went on, you could throw those forecasts from a year ago into a blender.
With all that behind us, what’s ahead for 2026?
The forecasts are trickling in, with every firm again insisting they’re more right than everyone else and reaffirming that there’s no better place in the world to invest than with them.
Is there any merit to this?
Not really.
Forecasts have been studied many times, most notably by Philip Tetlock, who in his 2005 book Expert Political Judgment examined 28,000 political and economic forecasts made by experts – academics, intelligence analysts, journalists and policy specialists. His goal was to find out how good experts are at predicting political and economic outcomes.
He concluded that even the experts were only slightly better than random guessing, or the proverbial chimpanzee throwing darts. He also found that the more confident the expert was, the less accurate their forecast.
Predictions are always based on the information available at the time. There’s the constant pretext that while right now is uncertain, the future will be easier to predict. But has there ever been a year when we weren’t living through all sorts of uncertainty?
We’re not approaching some endpoint in history in which the unknowns will be behind us and everything will be clearer once we get past this little bit of uncertainty. It doesn’t work that way.
The “Liberation Day” market drop and subsequent recovery was an example of introducing a new “unknown” into the markets. As new information becomes available, forecasts and expectations shift.
Advisors must address the futility of forecasting. Our clients and marketing departments need to be reminded that forecasts are an exercise in vanity, and any prognostications should come with “for entertainment purposes only” disclaimers.
If we took the advice of the forecasts, we could end up zigging and zagging portfolios through 2026’s inevitable ups and downs. Some might get lucky and be right, though likely for the wrong reasons. Will we then depend on luck in 2027 and beyond?
In 2026, advisors should take the time to build and review clients’ financial plans and ensure the steps they’re taking are in alignment.
Test yourself: Do your clients have a financial plan? Have you stress-tested those plans through a Monte Carlo simulation? Are decisions such as what to invest in aligned with the plan?
If the answer is yes to all, then that’s a great start.
Now, does your plan include using Magic 8 balls, tarot cards or market forecasts? Hopefully not. That means we can stop talking about what you think the markets will or will not do in 2026. Nobody knows, and nobody should care about your or my hunches or prognostications.
Uncertainty is a force of nature and not something that can be solved. Planning is about accounting for uncertainty. Ensuring clients have a thorough financial plan they understand and trust is far more valuable than guessing the future.
What will happen in 2026? Who knows.
Advisors must embrace the unknown as a normal state, beyond our control, and make sure clients know that we don’t know. Any word to the contrary is disingenuous.
Remember – the markets are voodoo, and that’s okay.
Cameron Smith, CFP, CIM, is a wealth advisor with Clarify Wealth at IPC Securities Corp. in Ancaster, Ont.