No Financial Planning Software or Calculator Can Predict the Future

No financial planning software and no investment growth calculator can predict the future

The future is simply not predictable, even with automated financial planning software.

A previous financial article, “The Solution - ONLY follow financial strategies that are scientific, passive, diversified, savings focused, risk controlled, low cost, and tax efficient,” suggested that investors are much better off with a well-considered financial plan. A stable set of financial beliefs can help you to keep focused and on track throughout your life.

The future is fundamentally unpredictable. The future of personal financial planning and investing is similarly unpredictable. Anyone claiming or implying that they can predict what will happen to investment returns in the securities markets in the future is just blowing smoke. If their predictive smoke claims to benefit you, then you should be suspicious.

If you have to pay a lot of money to buy their predictions or financial advisor services, then you should be far more suspicious. When you have to push a lot of money across the table to pay some supposed seer, then that oracle is likely to win in the transaction, while you are likely to lose. (In itself, this is a probability-based prediction on our part. However, our prediction relies on one of the most consistent findings from the financial science literature, which is “the more you pay to play, the less you will keep from the investment securities markets.” (See our articles in these categories: Scientific Investing and Controlling Investment Costs)

Similarly, anyone who claims that he or she can assess probabilities about what will happen financially in the future is over-reaching at best. While probability assessments about the future may seem reassuring, they are just another method of blowing smoke. Because most individual investors are risk adverse, they naturally seek reassurances about their futures and their personal financial planning. Many are all too willing to listen to and pay dearly for seemingly authoritative pronouncements about probabilities related to the future. If someone tells you that his financial planning calculator method or investment growth calculator prediction has a certain probability associated with it, be very careful to understand the assumptions and methods used to develop this probability statement. The higher the prices of financial advisors’ services, the more questions you should ask.

Securities market prices reflect the collective efforts of all professional and individual investors to peer into the future. Historically, securities markets have paid risk premiums to investors only to bear market risks. Investment risk does not decline with the passage of time. It is always there. With investing, there can be no assurances, unfortunately. (See our articles in these three categories: Securities Valuation, Luck versus Skill, and Returns and Risk Premiums)

Too often, financial services companies give individuals advice about financial planning and investing that includes some razzle-dazzle about their supposedly superior analytic model, system, or tool. The general theme is usually the same: pay us and we will help you to beat the market using our unique insight developed from our special tool, model, system, etc. Unfortunately, these marvels are just more sophisticated forms of blowing marketing and sales smoke — this time aided by technological mirrors.

Go to Part 2 of 2 –>>

Related Personal Finance Reading:

More evidence on the dollar risk premium in the foreign exchange market [An article from: Journal of International Money and Finance]

Securities Markets in the 1980s: The New Regime 1979-1984 Volume I

Personal Financial Planning : How to Plan for Your Financial Freedom (McGraw-Hill Paperbacks)

Value Averaging: The Safe and Easy Strategy for Higher Investment Returns (Wiley Investment Classics)

The Market for Force: The Consequences of Privatizing Security

Related Personal Financial Planning Posts

• Avoid Mutual Fund and ETF Sales Commissions and Fees ( Avoid mutual funds and ETFs with sales commissions and marketing fees Summary: There is no convincing evidence that sales loads and other sales fees charged to investors result in higher mutual fund and ETF performance. In fact, the opposite has repeatedly been proven true with mutual funds, which have a long performance history to evaluate. Paying a [...])
• The Value and Opportunity Cost of Your Personal Investment Management Time ( Your time is valuable, and it should be included in calculations about your investment returns. Whether you add or subtract value from your assets when you spend time on investment activities should also be evaluated. Some investors spend significant time on the wrong strategies. Instead of adding value, their efforts reduce their investment portfolio performance and [...])
• Nationwide S&P 500 Index Fund - Class A Shares (GRMAX) fetch a +2 Fund Authority Score (Fund Authority Scores rate mutual funds and exchange traded funds (ETFs) on the most important economic factors that influence individual investors' net long term diversified investment fund performance. The Skilled Investor developed the Fund Authority Score system to provide individual investors with concise and objective summaries of mutual funds and ETFs for comparisons within investment [...])
• The Quality and Cost of Advice Paid by Investment Sales Loads - Part 2 ( Can you really get free and objective investment advice, when you pay investment sales loads? (Part 2 of 2) Excessive investment costs and investment expenses are a plague on your lifetime personal financial planning. Excessive investment expenses are one of the most significant barriers to lifelong family financial security. While financial services industry sales people tell you [...])
• 2006 and 2007 Personal Income Tax Rates for the 50 States and DC ( 2006 and 2007 personal income tax rates for the 50 states and D.C. The Skilled Investor has made available for downloading a spreadsheet that contains graduated personal income tax rates and other personal income tax rate information for the 50 states and the District of Columbia. If you want to know about specific U.S. state personal graduated [...])
• Savings Rates for Renters and Investment Cost Reductions ( Pre-retirement savings rates for renters - with and without investment cost improvements Improving on Fran and Fred's lifetime financial plan through lower investment costs Fran and Fred Frugal, both age 30, are a married working couple with $100,000 in combined annual earned income. They want to understand how valuable different personal finance strategies could be to their [...])
• Screening Index Mutual Funds with IndexUniverse.com ( Screening index mutual funds on-line with IndexUniverse.com In this article, The Skilled Investor discusses how to screen index mutual funds on-line. This article focuses on using the free index mutual fund screener and database available at IndexUniverse.com. We also discuss how to apply our seven scientifically based mutual fund screening criteria. In a previous article, The Skilled Investor [...])
• Financial Industry Product Development and Your Best Interests ( Financial research drives industry product development, but not necessarily toward the best interests of individuals Personal financial decisions seem to have become very complicated. To add to the confusion, the financial services industry develops an unending array of supposedly innovative new products. However, a large part of the complexity that individuals face results from the proliferation [...])