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Brett Investment - Financial Predictions 2012

Predictions for 2012

At this time of year, investment pundits start sharing their predictions about the likely performance of the FTSE 100 over the next twelve months.

It is always a fun game to observe but the important thing is to treat it exactly as that – just a game. When asked myself where the FTSE 100 index will end up in 2012, the only answer I can really give is “I don’t know!”

To some extent, the performance of the FTSE 100 (or any other arbitrary investment index) doesn’t matter too much. It would be very rare (and probably quite foolish) for any investor to be solely exposed to a single index or investment asset class.

Instead, a diversified portfolio (containing many different asset classes) offers a much better chance of having a successful investment outcome.

So what can we learn from a difficult year like 2011?

Those who invested solely in equities have had a disappointing year (thirty-seven out of forty-five markets tracked by MSCI posted negative returns); whereas fixed interest investors, and in particular UK gilts, have done very well.

As Dimensional founder David Booth is fond of saying, the most important thing about an investment philosophy is that you have one. For those investors (and professional advisors) who switched course from a sensible long term buy-and-hold philosophy to a market timing strategy, we suspect few would have been able to clearly articulate their investing beliefs and why they had shifted.

Legendary investor Benjamin Graham offered the following observation nearly forty years ago: “There is no basis either in logic or in experience for assuming that any typical or average investor can anticipate market movements more successfully than the general public, of which he himself is a part.”

Good advice then, good advice now.

Source: Dimensional Fund Advisors, Weston Wellington, 10.01.12