Forecasts can be dangerous but only if they are blindly relied. It is important to understand that forecasts are at best, educated guesses on what may occur in the future, and at worst, tools used to initiate a desired action.
Forecasts are used all of the time in investing and financial planning. We forecast standard deviations, investment returns, spending levels, inflation and even at what age someone will pass! Yet, we make these forecasts with the understanding that we know we are likely wrong, we won’t get things exact, but we use large enough cushions to ensure the forecasts aren’t detrimental to an individual’s ability to meet their financial goals.
Where forecasts are dangerous is when they aren’t questioned/analyzed or are purported as exact representations of what the future holds. If your financial plan relies on a forecast of 25% investment returns you are likely setting yourself up for failure. That type of return forecast should be questioned because we haven’t had long term returns like that…. ever.
Forecasts are necessary, we just need to understand their limitations and the fact that the future is unknowable, FOR EVERYONE…
If you haven’t recently reviewed your financial plan you should contact your CERTIFIED FINANCIAL PLANNER™ Practitioner.
If you aren’t currently working with a CERTIFIED FINANCIAL PLANNER™ Practitioner you can find one HERE.