Along with trees and reindeer, December brings with it all of the "predictions for 2012" articles. Some will be naughty and some will be nice, but should you change your portfolio after reading them? Here are a few points to consider before reading every 2012 financial prediction article.

TUTORIAL: Investing 101

Three Types of Pieces
Financial media pieces come in three varieties:

Prediction Articles
Prediction articles attempt to forecast on a future event. Although these make for an interesting read, they hold very little actionable value for your portfolio. Those making the predictions will have a lot of academic reasons why they are right, but if somebody were able to predict the movement of the stock market with any certainty they wouldn't be offering that information to you free of charge. (For related reading on the subject of predictions, check out 5 Doom And Gloom Wall Street Prophets.)

Action Articles
These are the articles that tell you to do something for the New Year. It's 2012 so you should refinance your home, rebalance your portfolio, buy more bonds or save more. Some of these articles serve as great reminders to address something that you don't normally look at throughout the year, but should you act on anything that puts undue importance on the New Year?

The date on a calendar means nothing when making investment choices. Is a company that was a bad investment in December of 2011 going to suddenly be a good choice in January of 2012? Don't make any financial moves based on the New Year's hype.

Education Articles
Education articles may be the most useful to you. The best investors reflect on what worked and what didn't ... not just after every trade, but over long periods. Any article that provides verifiable facts from a trusted source as it looks back on 2011, can serve as a way for you to reflect on how well you managed your money in the past year.

An article looking back on the largest financial events of the year allows you to reflect on how you responded to those events. An article telling you how much the price of food rose in the past year gives you solid information as you plan your 2012 budget. Education articles are the most useful articles because they are based on fact, and the only way you should ever make money choices is when it is based on data.

Other Considerations
Any article that you read is written for the masses. If the article is successful, hundreds of thousands or even millions of people may read it. The only financial information that should result in action from you is information that is tailored to you and your unique situation. Using articles as a stepping off point to more research or as a way to form questions for your financial advisor is smart. Taking action is not. (Looking for a financial advisor? For some insight on choosing one, read 7 Financial Advisor Red Flags.)



Your 2012 Test
Let's see what you have learned. If you were to pick one article to read based on the headline, which of these two would you pick: "Top Investor Predicts Stock Market Crash in 2012" or "Investors Advise Having Long-Term Goals For Maximum Gain in 2012?"


If you said No. 2, you're correct. The first headline sounds important, but holds little actionable value. No. 2 addresses a strategy that successful money managers know. If they're doing their job correctly, there won't be a lot to do other than infrequent maintenance. In his book, "Winning the Loser's Game: Timeless Strategies for Successful Investing," Charles Ellis reminds us that beating the market does not work and he spends most of the book citing statistics that prove it. (For more, read Can Regular Investors Beat The Market?)

The Bottom Line
In 2012, stay the course if you're a long-term investor, and only make trades that have a lot of research behind them if you're a short-term trader. Use the financial media to gain exposure to new products or ideas, but resist the urge to make any decisions based on the flood of coming 2012 predictions.

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