<div id="readability-page-1"><div>By Mark Hulbert'It's tough to make predictions, especially about the future,' Yogi Berra said. He could have been talking about Wall Street.Wall Street's best and brightest analysts miss wildly with their year-ahead stock-market forecasts.&#34;There are two kinds of forecasters: Those who don't know, and those who don't know they don't know.&#34;Economist John Kenneth GalbraithThe Wall Street firm with the best record forecasting the S&amp;P 500's year-ahead return for 2025 hasn't come close to being on target.Bear this in mind as you read Wall Street's predictions of how the U.S. stock market will perform next year - an annual forecasting ritual that virtually all firms participate in. If even the top-rated firm - Bank of Montreal, for the record - doesn't come close to being accurate, why pay attention to any of them?According to a Bloomberg analysis, the average absolute error in the top-rated firm's forecast of the S&amp;P 500's SPX subsequent-year price change was 10 percentage points between 2000 and 2024. Each of the other firms that were analyzed did even worse: On average across all firms, the absolute error was more than 15 percentage points.On a price-only basis, the S&amp;P 500's annualized gain over the period Bloomberg studied was 6.2%. So these firms' average error was 2.5 times the S&amp;P 500's average gain. This result reinforces the conclusion reached by the late economist John Kenneth Gailbraith: &#34;There are two kinds of forecasters: Those who don't know, and those who don't know they don't know.&#34;Hedge-fund managers also have terrible forecasting recordsThis &#34;not knowing&#34; is not confined to prominent Wall Street investment firms. Hedge funds, supposedly managed by the best and brightest on Wall Street, have no better record on average. Macro hedge funds - those that focus on predicting macroeconomic shifts - have performed even more poorly than other hedge funds, on average; and the average hedge fund in turn has significantly lagged the S&amp;P 500. (This according to data from HFR, a firm that tracks the performance of many different categories of hedge funds.)This poorer performance is illustrated in the chart above. HFR's Macro Hedge Fund Index gained 6.3% annualized over the five years through October, in contrast to 8.9% annualized for HFR's Composite Hedge Fund Index and 17.6% for the S&amp;P 500's total return index. The 10-year results are equally sobering.Why forecasting is so difficultIt is not an accident that Wall Street's brightest analysts have such dim records. The odds of success are so low that even being better than average won't help you turn a profit.This point was emphasized several years ago by Howard Marks, co-founder and co-chairman of Oaktree Capital Management, in an essay entitled &#34;The Illusion of Knowledge,&#34; which arguably is the best overall discussion of the folly of stock-market forecasting.He wrote: &#34;I imagine that for most money managers, the [decision-making] process goes like this: 'I predict the economy will do A. If A happens, interest rates should do B. With interest rates of B, the stock market should do C. Under that environment, the best-performing sector should be D, and stock E should rise the most.' The portfolio expected to do best under that scenario is then assembled.&#34;But how likely is E anyway? Remember that E is conditioned on A, B, C and D. Being right two-thirds of the time would be a great accomplishment in the world of forecasting. But if each of the five predictions has a 67% chance of being right, then there is a 13% probability that all five will be correct and that the stock will perform as expected.&#34;Marks summarizes his argument by quoting Mark Twain: &#34;It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so.&#34;A 'tip' about moving forwardThough you might think the investment implication is to give up, that isn't the case. But it does mean you shouldn't base your strategy on Wall Street forecasts.For most of us, our default portfolio strategy should be to buy and hold a diversified portfolio of index funds representing several different, uncorrelated assets. Only rarely should we deviate from this default portfolio, and only when a particularly high-probability bet presents itself.A current opportunity exists in the market for TIPS - U.S. Treasury Inflation-Protected Securities. Based on current prices, investing in a TIPS ladder locks in a 4.6% inflation-adjusted withdrawal rate from your portfolio over the next 30 years. Details are outlined at TIPSLadder.com.Read: This one money move guarantees you inflation-proof income in retirementFor years financial planners counseled clients against counting on even a 4% withdrawal rate, given both the long-term history of the stock and bond markets and equities' extreme overvaluation. But now there is way to do significantly better than that 4% withdrawal rate, guaranteed by the U.S. government. Opportunities such as this come along rarely, and it behooves retirees and near-retirees to seriously consider it for a portion of their retirement assets.There is a catch: The TIPS ladder strategy is boring. After purchasing the ladder, you do nothing else for 30 years other than each year collect the inflation adjusted 4.6%. The thrill seekers among you may therefore prefer to bet on which Wall Street firm's 2026 forecast will be right, even while knowing that you most likely will be wrong.Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.comMore: Sorry, retirees - the 4% rule won't work for you if Vanguard is right about where the stock market is headedAlso read: FIRE fans had mapped the road to early retirement. Then health-insurance costs exploded.-Mark HulbertThis content was created by MarketWatch, which is operated by Dow Jones &amp; Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.</div></div>

TIPS

Market forecasts are often inaccurate, with Wall Street firms and hedge funds missing targets significantly. The average error in S&P 500 forecasts is 10-15 percentage points. Howard Marks highlights the complexity of forecasting, suggesting a diversified portfolio strategy instead. A current opportunity lies in TIPS, offering a 4.6% inflation-adjusted withdrawal rate over 30 years, surpassing traditional 4% rates.

Market forecasts are usually wrong - but this inflation-fighting asset sees the future