FOOL'S EYE VIEW
Predictions 2002: Expect The Unexpected

By Maynard Paton (TMFMayn)
January 4, 2002

Carburton Street, London -- It's that time of year again. The New Year traditionally brings out many a pundit's forecast. But whether the predictions concern interest rates, house prices, the FTSE 100 or the forthcoming World Cup, one thing is for sure: nobody has an accurate crystal ball. Not for nothing did movie mogul Sam Goldwyn say "Forecasts are dangerous, particularly those about the future."

However, even with Mr Goldwyn's words in mind, here are three predictions that are almost sure to come true during 2002.

1. The unexpected will happen...in your personal life

Face it. Unpleasant surprises lie in wait for everybody. This year could see you lose your job (again). You may fall ill instead. And you may have an accident. Or you may die.

Do you have sufficient cash reserves for any emergencies? Do you think you need any insurance? Have you made a will? Avoid financial heartache for you and your family when the unforeseen enters your life -- ensure your basic personal finances are properly sorted NOW.

2. The unexpected will happen...with financial products and services

Consider Equitable Life. Clever Dick and Harry Hindsight may have been able to foresee the group's downfall, but Joe Punter was left in the dark until it was far too late. Endowment mis-selling, pension mis-selling, the list of past financial scandals is as long as your arm. Will the ordinary man in the street continue to suffer in 2002 from yet more investment industry shame? More than likely.

While the nature of the next financial disgrace will probably surprise everyone, where could the dangers lie? Well, there's a whiff of trouble with guaranteed stock market bonds at the moment. Lax mortgage lending, hedge funds and any product deemed to "beat a bear market" are other possibilities for disappointment.

Remember to keep your financial product misery to a minimum in 2002. Ensure you understand what you're buying and bear in mind the old adage "if anything looks to good to be true, it usually is".

3. The unexpected will happen...on the stock market

Who thought 2001 would see the London stock market report its worst ever performance since 1974? Who thought last year would see Railtrack (LSE: RTK) shares become worthless? And who thought Marconi (LSE: MONI) shares would ever touch 13p? Nobody.

In 2002, your investments will undoubtedly be hit by an unexpected event. Some unforeseen worry or euphoria will affect at least one company in your present portfolio. Maybe interest rates will double. Maybe the oil price will halve. Maybe the Euro will hit trouble. Maybe someone will discover the cure for cancer. Who knows?

More dead certs

Okay. Suggesting that only "the unexpected will happen..." in 2002 is pretty much a shoe-in for any pundit. So how about two more personal finance predictions which are likely to come true this year?

1. You (and your fund manager) won't beat the stock market

Given the surprises that the corporate world continues to throw up, it's no shock to discover professional fund managers continue to underperform the stock market average. Research has shown that the simple index tracker will beat three out of every four managed funds over the long term. And while there's little reliable information on the performance of private investors, it's a fair bet that the average ordinary investor does no better than his professional counterpart.

What will cause your 2002 underperformance? The usual problem: a combination of too much complacency, too much greed, too much trading and too little homework. Your fund manager will probably suffer the same problems. But his performance may be hindered further by charging too much in fees.

2. You will continue to waste money

While you will endeavour to save money this year, financial lethargy will almost certainly strike at some point. For instance, you will continue to run up debts on your credit card. Or you won't consider consolidating your debts. Nor will you investigate remortgaging your property, nor do anything about that costly endowment.

Furthermore, you won't look for cheaper home and motor insurance. You won't contemplate switching to cheaper gas and electricity suppliers either. You'll may also ignore the tax savings to be had from ISAs and the low-cost alternatives to personal pensions.

Not only that, but you won't shop around for better deposit accounts. Any money you do save will remain in accounts that pay derisory rates of interest.

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