Wondering what 2018 has in store for the stock market—and your money?
Of course, nobody has a reliably functioning crystal ball, and we stand by the advice that it’s smartest to stick with a well-laid investing plan regardless of short-term fluctuations. But knowing what factors may affect the market in the coming year can give you a chance to check any emotions that could derail you.
Here are four predictions that could affect our portfolios.
1. The bull market will slow down.
To be clear, though, he’s not expecting our long-running bull market to end; he just thinks it’ll go for more of a saunter. The Dow Jones industrial average could soon hit 25,000, driven by new corporate tax cuts, he says. After that, he predicts stocks will return a more modest 5 to 10 percent in 2018, compared to the Dow’s 25-percent gain in 2017. (That’s not a bad thing: That range is actually closer to the average annual returns we’ve seen over the past century.)
2. Inflation will continue to rise.
In what was likely her last testimony before Congress as the Federal Reserve Chair, Janet Yellen was relatively upbeat, saying that the U.S. economy is growing at a healthier pace across all sectors and that she expects that growth to continue.
Inflation—or the rate at which prices are increasing—has remained below the Fed’s target rate of 2 percent, however. (That’s the rate the central bank thinks is best over time for keeping prices relatively stable and unemployment low.) It stood at 1.6 percent overall as of October, but Yellen expects it to rise in the next couple of years.
Why should you care? As prices increase, our money doesn’t go as far—meaning growing our money through investing will become even more crucial. And as inflation grows, the Federal Reserve is also more likely to raise the rates at which banks can lend money to each other, which in turn affects the rates we pay on loans and credit cards.
3. Wall Street will face more pressure to lower fees.
Investing great John Bogle, founder of the Vanguard Group, has a few predictions for 2018 to share: One is that, like Siegel, he expects stocks to offer lower returns next year—and beyond. A second prediction is that we’ll get an annualized average return of 3.1 percent over the next decade from bonds, he estimates.
Those lower returns, along with investors’ growing preference for index funds over actively-managed funds, will squeeze Wall Street firms, he says. “The importance of (investors) getting the return first before the vultures are on it is going to become clearer,” Bogle told CNBC—and by “vultures,” he means investment firms that charge high fees on funds they run or money they manage for us. Lower fees means less money for them—and more for us.
4. The U.S. will remain strong for the long haul.
Despite the expected slowdown in the growth of U.S. stock prices, Bogle still thinks this is the place to be, at least portfolio-wise. "U.S. companies are innovative and entrepreneurial," he says.
And he’s not alone. At a recent event, investing guru Warren Buffett noted that “being short America has been a loser’s game,” and predicted that will continue, calling those who are pessimistic about the U.S. “out of their mind.” He also said he expects the Dow to march ever upward well beyond 2018, projecting that it’ll head over 1 million in 100 years. Talk about long-term investing.