Precarious predictions

Looking back at the predictions (or should I say wild guesses?) made by financial experts over the past two years, the best advice may well be to look at them carefully and then assume that the opposite happens.

In January 2014, I wrote that the average prediction for the FTSE 100 by five leading firms was 'wildly optimistic', at the average estimated increase came in at 12 per cent. The experts were forecasting a rise from 6,749, opening on 1 January 2014, to the dizzying heights of 7,560 at close on 31 December. The index actually fell to 6,566.

Similarly, in January of this year, five leading firms predicted the FTSE would rise from 6,566 to 7,320, which was once again, demonstrates a rise of roughly 12 per cent. Citigroup optimistically predicted a climb to 7,700, meaning that it would need to rise 28 per cent from 6,000 that it sits at (as the time of writing). Even the fabled 'Santa Rally' (if it arrives at all this year) would be hard pressed to pull off that much of a miracle.

So that's two years on the trot that experts on average projected an increase in the region of 12 per cent, only to see the index fall. If they stick to form, then the average prediction for next year will be in the region of 6,700 at close on 31 December 2016, and that's exactly what I think they will do.

High risk, high reward

Now, onto my own predictions. In 2014, I suggested that commercial property would be the best performing asset class, and I am pleased to say it was. In 2015, I suggested switching out of property and into the FTSE 100 at 6,400, then switching out again at 6,950 and going back into property. If you had followed this high conviction approach over the past two years and bought the average property fund, you would have made in excess of 10 per cent pa.

Now however, I would switch out of property and buy a FTSE 100 tracker, this time with a plan to switch back to property again when the FTSE gets to 6,750. However, this is just my opinion and comes with a caveat - I have always emphasised that, as a firm, we never advocate having such a high conviction approach as by doing so, you are backing just one horse. I am arrogant enough to believe that I can pick the right one (or near enough) 8 out of 10 times, but the issue is that when it goes wrong, it could unwind all the past profits.

Here are my top tips for the new year, and you may notice that none of them include a single prediction:-

1. Know thy numbers. If you want to be successful with your investments then you need to be clear about the returns that you are aiming for and over what time period. Analyse what returns you have achieved over the last year, three years and five years. How do they compare?

2. Stress test the portfolio. Work out how the portfolio will perform in the best and worst time periods to ensure you are happy with the risk.

3. Have a well balanced portfolio of property, cash, equity and bonds (both government and corporate).

4. Be proactive with changes. The world is moving quickly so it's essential that your portfolio keeps up.

5. Be brave but not greedy. Have the courage to top up holdings when an asset class drops and the common sense to sell when it rises.

Regardless of what the FTSE might bring, I wish you all health and happiness during the festive period. I hope that any New Year resolutions go well for you and that they do not head in the opposition direction, akin to some of the yearly financial expert predictions…

Colin Lawson is founder and managing partner of Equilibrium Asset Management

He writes a regular blog about wealth management for Private Client Adviser