Is the January Barometer a Viable Investing Tool?

When you are looking to make the most from your investments, you will find that many investors are willing to use any tips or tools that they feel will help them make better predictions about the market.  One tool that many use when investing is the January Barometer.  What exactly is the January Barometer, and is it really an effective tool for investors?

While it may sound like an actual device, the January Barometer is actually a theory of financial investing.  In a nutshell, the theory states that the economic performance of the year will typically correlate to the economic performance in the month of January. 

This is, at least in theory, a good investing tool to at least consider, but how reliable is it?  January is certainly the month that many investors look into changing their portfolios and investing strategies, so it makes sense that this is the marker that people use to gauge the years investing predictions.

The January Barometer actually has a surprising track record.  Studies show that it is incredibly effective at predicting the flow of the market, with around a 70% accuracy rate in years where the market fluctuated at least 5%.  The problem, however, is that it is much more effective at predicting years of market increase than decrease.  There have also been years where the January Barometer and the actual investing market were just not the same at all.

At the end of the day, the January Barometer can be a good tool to give a general prediction of the investing market, but it shouldn’t be used as a sole tool to determine your portfolio for the year.  Much like a horoscope or tarot reading, it can give enough general information to seem accurate, but you wouldn’t want to bet the entire farm on its predictions.