Wall Street legend Burt Malkiel dismisses S&P 500 and recession forecasts, slams bitcoin, and warns pricey stocks may limit investors' returns

• Wall Street legend Burt Malkiel says to ignore experts' S&P 500 forecasts and recession predictions.
• The Wealthfront CIO touted index funds, trashed bitcoin, and warned speculators in an interview.
• The author and academic said lofty stock valuations are likely to weigh on investors' returns.

Financial pundits line up every January to deliver S&P 500 forecasts and declare it will be a stock picker's market. Just ignore them, one Wall Street legend says.

"That's useless, and it's the wrong way to think about investing," Burton Malkiel told Business Insider this week. "Nobody knows what the market's going to do in the short term."

"Don't try to time the market — you can't do it and you're more likely to get it wrong than right," he continued. "And don't think you can be a stock picker this year, it never works. You're much better off being an index investor."

Malkiel is the chief investment officer of investment platform Wealthfront, a professor emeritus of economics at Princeton University, and the author of "A Random Walk Down Wall Street." He spoke ahead of publishing a letter to Wealthfront investors on Thursday that trumpeted the power of dollar-cost averaging, low-cost index funds, portfolio diversification and rebalancing, risk management, and tax-loss harvesting for everyday people.

Warren Buffett and Jack Bogle, who Malkiel hailed as "two of my heroes," have offered similar advice. The legendary stock picker has said that almost everyone should steadily invest in a S&P 500 tracker fund over the course of decades. Meanwhile, Vanguard's founder has underscored the danger of fees by saying that "in investing, you get what you don't pay for."

Back in 2020, Malkiel rang the alarm on the day-trading boom as the antithesis of that approach. In the interview this week, he called out the same kind of mindless speculation on meme stocks and cryptocurrencies.

"Absolutely that still is in my view a real danger," he said. "Most people are going to lose their shirts."

Malkiel singled out bitcoin as especially worrisome, given its volatility and lack of utility.

"This is not a useful currency, its only uses are to hide things from the government and for ransomware," Malkiel said. "I don't want to go in and buy my Starbucks coffee in the morning with bitcoin which might be worth $45,000 one day and $40,000 the next."

The former Vanguard director, dean of Yale's management school, and White House economic advisor also weighed in on the stock market.

"There's no question about the fact that valuations are high," he said, although he noted that price-to-earnings multiples on the hottest technology stocks are still a fraction as high as during the dot-com bubble.

Still, he warned that lofty prices would likely weigh on portfolio performance.

"When valuations are above average, long-run returns are going to be somewhat lower" than their roughly 10% annual average over the last century, he said. "There's probably somewhat greater optimism about returns than there should be. People ought to be very modest in their expectations."

As for the economy, Malkiel emphasized the futility of trying to call the next downturn.

"Not only do I think you can't predict the stock market, but neither the market, the Fed board of governors, or economists can tell you if we're gonna have the recession," he said. "I don't have any idea, and neither does anybody else."

Malkiel concluded by reiterating the core message of his letter: "Regular saving, even for people of very modest means, can get you a wonderful retirement portfolio," he said. "The American dream is not over."