During this season where predictions are made for the coming year, one always feels a little left out. That’s probably because it’s easy to recognize the folly of trying to predict the S&P or other market indices when no one can know with certainty. (Personally, I just know I don’t know.) However, that is not to say there aren’t predictions to offer, as well as some advice based on those predictions, that might actually help increase returns in the new year.

You’re Not as Risk-Tolerant as You Think

It’s as predictable as the sunrise. Stocks hit an all-time high and statements like “I want to be 100% stocks” and “VTI and chill” are bravely made. Bonds are “wimpy,” some will say. But inevitably, a bear market comes and those same people are often the ones to panic and sell, saying: “I’m using new information because this has never happened before.” The problem is they weren’t in touch with their feelings, and didn’t realize the pain they would feel when they saw their financial independence slipping by many years.

It turns out that every market surge and plunge is different, and some markets can take decades to recover. A balanced portfolio where one picks an asset allocation between stocks and bonds and sticks to that allocation is superior for reaching client goals. If stocks surge, clients must sell to get back to their asset allocation target. If they plunge, clients must buy. Yes, it is better to buy low and sell high rather than the reverse.

Hundreds of New ETFs Are Launched; Most Eventually Fail

Nearly 800 new funds hit the market in the first nine months of 2024. Likely, most performed spectacularly on a back-tested basis before the launch. That is simply (as I call it) “predicting the past.” If you look at thousands of different strategies, you are bound to find some that produced great returns in the past. Yet correlation isn’t causation, no matter how it’s explained.

Buying an ETF whose strategy worked in the past typically involves reversion to the mean. That means, clients are buying high and then other factors have their day in the sun and the ETF underperforms. Last year, 622 ETFs closed, and 179 closed in the first four months of this year. What do the new funds and closed funds have in common? They are narrow and expensive. It’s better to own everything in total index funds with the lowest costs.

A Few Funds Succeed, Attracting Billions

By sheer luck, some of those narrow funds will spectacularly succeed with stellar returns. Money will pour into these funds and the fund manager will be celebrated in the media, and explain why their strategy is so brilliant. Those funds are likely to be the biggest wealth destroyers, even though the funds themselves performed well.

See, the funds are tiny before they get hot. Then assets mushroom as investors chase the performance of the supposed genius fund managers. Then, when investors pour in billions of dollars, performance stinks. So the fund manager wins and the investors lose.

Here are the 15 largest wealth-destroying funds over the past decade. Cathie Wood’s ARK Innovation fund is third, destroying $7.1 billion, even though the fund itself has returned nearly 14% annually since its introduction. Like moths attracted to the light bulb that eventually cooks them, many investors fly to the hottest fund and get cooked.

Most People Will Think They’re Beating the Market When They’re Not

Not long ago, a financial journalist asked me what to tell someone who is “only earning a market index return?” My answer was that they should feel great about it. He countered by citing a US fund he bought for his kids that had a 170% return for the past decade. My response was that he significantly underperformed the total US stock market index, which returned 286% during the same period, meaning he underperformed by 116 percentage points. Most of us think we are above-average investors or are using managers who are above average. We either ignore benchmarks or play the benchmarking game and pick indices that have some unintentional bias to make us look good.

The Bottom Line. Now, these four investment predictions aren’t as emotionally appealing as knowing the 2026 market returns, or what the hot sectors will be. But if anyone actually knew that, wouldn’t they be the world’s first trillionaire rather than trying to be the guru peddling predictions?

Don’t ignore the specific market predictions that will be coming out in December. Google predictions for past years and see just how inaccurate they have been. While it’s exciting to follow specific predictions, remember Warren Buffett’s quote: “Investors should remember that excitement and expenses are their enemies.” Best wishes for an exciting 2026, but remember to keep that excitement out of your investing. Boring, and as low cost as possible, is best.