Forecast Facts and Follies
About this time of year, two things begin to happen.
Most people review the year past and make
predictions for the year ahead.
Economists in particular make detailed forecasts
about what they expect to see in terms of economic
growth, employment, inflation, interest rates, and a
host of other indicators. Government officials,
corporations, small businesses, and others rely on
these estimates to make their plans.
As you wade through the 2005 predictions, it might
help to measure how accurate forecasters were in
Economic Growth - In 2003, a panel of
economists polled by The Wall Street Journal
predicted that gross domestic product (GDP), a
broad indicator of the U.S. economy, would grow at
a 4.5 percent rate in the first quarter of 2004. The
forecast was accurate: GDP actually grew at a 4.5
percent annual rate during the quarter.
Inflation - The panel was asked to predict
what the inflation rate would be in May 2004. They
projected that the Consumer Price Index, a
commonly accepted measurement of inflation, would
grow by 1.9 percent compared with a year earlier.
The CPI actually grew at a higher 3.1 percent rate in
May 2004 compared with May 2003.
Unemployment - When the economists were
asked to predict what the unemployment rate would
be in May 2004, the consensus was 5.7 percent. The
actual rate was only slightly lower at 5.6 percent.
These predictions turned out to be fairly accurate,
but forecasts can be wrong - sometimes by a wide
margin. For example, GDP grew at a whopping 7.4
percent annual rate in the third quarter of 2003, yet
in June 2003, economists had predicted a 3.5
percent growth rate for the quarter.
Forecasts can be useful for planning and goal
setting, but they should be viewed as pieces of a
larger picture. Making plans based on your time
horizon, risk tolerance, and personal goals may help
you keep your eye on the long term.
Happy New Year! A lot of people talk about
what they are going to do with their future. They
often dream about it. But those people who achieve
true success in their lives set S.M.A.R.T.
goals. Specific Measurable Achievable
Realistic Timely. Everyday we work with our
clients to set these types goals. We even have
developed Goal Cultivator Communities of
who are committed to goal setting and enjoy the
energy of sharing them in an intimate setting with
other like minded people. Contact us if you are
interested in learning more.
Time to Share. Create a Buzz. Looking for a
New Year's Resolution? How about becoming a
mentor? The Center for
Women's Leadership at Babson College is looking
for alumnae and friends to mentor Women's
Leadership Program students one-on-one at the
undergraduate level. Mentors need at least five years
working experience and should reside in the Boston
area. For 2005 consider a resolution to become a role
model or encourage a friend who you feel would make
a great mentor. This a wonderful opportunity to
engage directly with current students and improve
your own coaching and mentoring skills in the
process! To learn more, or to volunteer, please
contact Danna Greenberg at firstname.lastname@example.org.
|A Good Sign: IPOs in Droves
If you keep a garden, you know that when you plant
the seeds can have as much effect on success as
how you care for them later on. No amount of
nurture can compensate for planting at the wrong
time, when a seed has little chance of germinating.
Late in 2004, a flurry of companies that had never
before issued stock flooded the market with initial
public offerings (IPOs). During one week, in
particular, (December 13 to 17), 21 companies made
market debuts, the highest weekly total since the
heady dot-com days of August 2000. All told, there
were more than 250 IPOs in 2004, more than triple
the rate of offerings in 2003.
|Differences Between Growth and Value Funds
It's an impossible guessing game. Will growth mutual
funds perform better in the long run, or will value
Looking at average annual returns for the past
decade, large-cap value stocks were ahead at 11.88
percent per year, compared with 9.21 percent for
large-cap growth stocks. Of course, you should be
aware that the return and principal value of stocks
and stock mutual funds fluctuate with changes in
market conditions. Shares, when sold, may be worth
more or less than their original cost.
|Adding an Immediate Annuity to Your Portfolio
Throughout most of the past century, loyal
employees could count on retiring with a pension
that paid a set amount of income for life. But over
the past two decades, the proportion of employees
covered by defined benefit plans (traditional
pensions) has fallen by half. At the same time, the
proportion of employees participating in defined
contribution plans has tripled.
Self-directed 401(k), 403(b), and other defined
contribution plans allow workers to accumulate
retirement savings even if they change jobs
frequently during the course of a career. But such
plans also require them to contribute a portion of
their salary, as well as to assume risks such as an
income shortfall and market fluctuations.
|How Life Insurance Fits into Your Estate Plan
Even with reduced estate tax rates and higher
exclusion levels, Americans could still be on the hook
for billions of dollars in estate taxes over the coming
years. More than half a million estate tax returns
were projected to be filed with the IRS in calendar
years 2004 to 2010.
Fortunately, there are strategies to help protect the
legacy you intend to leave your heirs. One popular
method uses life insurance to complement your
estate plan and possibly help offset your estate tax
|TIPS for Fighting Inflation
Even though inflation has been relatively quiet for
the past few years, there is some evidencethat it
may be heating up as the economy continues to
expand. The Federal Reserve has pointed to the
threat of rising inflation as one reason for raising key
Inflation is a major concern for all investors because
it reduces the value of money over time. Generally, it
takes time for an investment to earn money, so it
has to at least keep pace with inflation over time
just to avoid a loss.
|Best Practices When Approaching Financial Planning
- Set measurable goals.
- Understand the effect your financial decisions
have on other financial issues.
- Re-evaluate your financial plan periodically.
- Start now-don't assume financial planning is for
when you get older.
- Start with what you've got-don't assume
financial planning is only for the wealthy.
- Take charge-you are in control of the financial
- Look at the big picture-financial planning is more
than just retirement planning or tax planning.
- Don't confuse financial planning with
- Don't expect unrealistic returns on
- Don't wait until a money crisis to begin financial
||To learn more ...