I was recently reading an old post from Sam at Financial Samurai about the Disadvantages of the Roth IRA (very thought compelling).
The summary of the post was that the government is pulling a fast one on its citizens with the Roth IRA. They spread fear that a retirees’ taxes may be higher in retirement even though most retirees’ taxes are low since they don’t have an income. All contributions to a Roth IRA are taxed and therefore you are giving the government free money that they can waste for a long period of time.
In 2012 someone wrote the following comment on Sam’s post:
Tax rates WILL be higher in the future. I would stake everything I own on it.
There was only one problem with this prediction. It was completely wrong! Tax rates were reduced across the board as part of the Tax Reform plan late last year. This commenter is free to say whatever he believes but people must be careful when listening to these kinds of predictions. This guy probably thought in 2007 that house prices can only go up. Is he taking on a HELOC to buy Bitcoin this year?
Check out my post to see how the Tax Reform plan affects you: Tax Reform Calculator: How Much Will You Save or Pay?
This has caused me to reflect on how bad people are at predicting the future. Where are the flying cars we were promised? Weren’t the polar ice caps supposed to melt by 2014? Wasn’t Apple doomed after the death of Steve Jobs?
Examples of People Who Make Predictions for a Living
1) Weathermen: They’re wrong all the time. They constantly miss on hurricane tracks, snow totals, temperature, etc. Luckily they don’t have to be right to have a job.
2) Sports Analysts: Before any big game these analysts try to predict the score and are usually way off. Nobody knows what will happen once the whistle is blown.
3) Financial Analysts: Many have been bearish on the markets and have been calling for huge crashes since 2012. You are lucky if you have ignored them during this Bull Market.
4) Doomsday Predictors: I’ve lived through several doomsday predictions 1994, 1999, 2000, 2011, 2012, etc. Luckily the best prediction is more doomsday predictions.
5) Political Pollsters: According to Nate Silver on election night, Hillary Clinton had a 95% chance of winning the presidential election. Oops!
Takeaway. My advice is to be very careful in believing predictions. There are no absolutes in life. People who follow patterns will eventually be wrong when the pattern changes. For personal finance, the best thing you can do is learn the fundamentals. Once you have a solid foundation you will not be easily swayed by the noise.