Jack Bogle's dour forecast

[broadway]

https://www.financial-planning.com/opinion/jack-bogle-forecasts-lower-stock-and-bond-returns


Not good for me.

 

[jazz4cash]

I think he's been saying this for quite awhile now. Not sure why an audience of Bogleheads would be surprised. I bet not many on these boards will be.....

Bogleheads attending his annual conference in October were taken aback when Bogle predicted that stock and bonds returns would be significantly lower than historic benchmarks returns. Over the next decade, stocks will return an average of 4% annually while bonds will earn 3.5% annually, he forecast. Both predictions are significantly lower than historic returns since 1974 of 11.7% for stocks and 8% for bonds.

 

[haha]

I think he's been saying this for quite awhile now. Not sure why an audience of Bogleheads would be surprised. I bet not many on these boards will be.....

Bogleheads attending his annual conference in October were taken aback when Bogle predicted that stock and bonds returns would be significantly lower than historic benchmarks returns. Over the next decade, stocks will return an average of 4% annually while bonds will earn 3.5% annually, he forecast. Both predictions are significantly lower than historical returns since 1974 of 11.7% for stocks and 8% for bonds.

How could expected returns be anything other than lower than before if price increases are outpacing value increases? No matter what we are told, there is such a thing as an economic value to a business enterprise. Though this value can vary with enterprise and with time, it does not just add 10% pa to wherever you happen to start.

Ha

 

[walkinwood]

In a nutshell, 4% stock returns, 3.5% bond returns over the next decade.


Stock return calculated using 2% dividend yield + 4% earning growth - 2% speculative return (ie. change in p/e)


Short article - worth a read, but I don't agree with all the "implications" mentioned. Yet one more call for the death of the 4% SWR.

 

[GrayHare]

This is an argument against whole-market indexing. If Mister Market as a whole is going to return only 4% annually over the next decade, surely certain sectors will do better.

 

[OldShooter]

This is an argument against whole-market indexing. If Mister Market as a whole is going to return only 4% annually over the next decade, surely certain sectors will do better.

Absolutely true. But ...

What if 4% is not the number?

How will you know ahead of time which sectors will be winners? AFIK no one has yet perfected this art. That is why the stock pickers fare so poorly against their benchmarks. There is zero statistical data and zero academic research to support the myth that stock picking works.

 

[bobandsherry]

Just curious, anyone look back at his prior predictions and compare against what actually occured? It's easy to predict anything, being consistently right is that hard part. [emoji3]

 

[Rianne]

Not getting political, but I think Washington has a lot to do with this prediction. There is fear even though we are economically solid.

 

[HI Bill]

This is an argument against whole-market indexing. If Mister Market as a whole is going to return only 4% annually over the next decade, surely certain sectors will do better.

Surely you are right...now if we just knew which ones, and what timing....or had a financial advisor or broker who consistently beat the market.

My last company kept buying companies in different sectors (like oil & gas, pharmaceuticals)...they usually bought late in the cycle after comleting the due diligence, then the value tanked, then they sold at a loss.

Let's buy some oil futures...I remember a few years back, airlines were buying av gas ahead of time...some airlines got burned badly, and some made out like bandits!

 

[USGrant1962]

Not getting political, but I think Washington has a lot to do with this prediction. There is fear even though we are economically solid.

Washington has nothing to do with Bogle's forecast - it is simple math. The 10 year yield for bonds, current dividend yield plus earnings growth minus P/E contraction for stocks.

The last two elements are Bogle's forecasts, but his numbers are within historical norms.

 

[Dtail]

Well he is predicting these returns just for one decade, not a 30-40 yr period. Are the stock returns drastically different from what we saw from 2000-2010?
Are there any historical patterns in Firecalc which could be mapped out to this type of prediction for survival results?

 

[COcheesehead]

IF I get a 4% return on equities and a 3.5% return on bonds WITH 2% inflation. I would be very happy. Inflation is the silent killer.

 

[GravitySucks]

IF I get a 4% return on equities and a 3.5% return on bonds WITH 2% inflation. I would be very happy. Inflation is the silent killer.

Me too! Any positive real return each year over the next 10.

I see people saying hyperinflation couldn't happen here, but five years of 20% inflation would be enough to send me to Home Depot looking for work.

 

[ERD50]

Washington has nothing to do with Bogle's forecast - it is simple math. The 10 year yield for bonds, current dividend yield plus earnings growth minus P/E contraction for stocks.

The last two elements are Bogle's forecasts, but his numbers are within historical norms.

That's what I take from it as well.

And I'm fine with 4% for the next decade. Anyone with a conservative WR should be fine, even if inflation means they dip into their principal a bit.

If you retired ~ 15 years ago, with a 70/30 AA, and 3.5% WR, inflation adjusted, you have about 30% more buying power than started with. A decade of modest returns will be taken in stride.

Anyone expecting a straight line retirement portfolio has not been paying attention.

-ERD50

 

[ERD50]

Well he is predicting these returns just for one decade, not a 30-40 yr period. Are the stock returns drastically different from what we saw from 2000-2010?
Are there any historical patterns in Firecalc which could be mapped out to this type of prediction for survival results?

This site works well for plugging in specific years:

https://goo.gl/CsZjKt (from www.portfoliovisualizer.com - the short link includes some data entries)

-ERD50

 

[OldShooter]

... I see people saying hyperinflation couldn't happen here, but five years of 20% inflation would be enough to send me to Home Depot looking for work.

Not us, IMO. That is why the majority of our fixed income tranche is in TIPS.

We expect that in high inflation TIPS will do quite well, as Treasury will stop issuing them and panicked buyers will bid prices up well beyond what normal competitive YTM numbers would be.

We consider the small yield penalty we pay now to be an insurance premium, not an investment loss.

 

[Dtail]

This site works well for plugging in specific years:

https://goo.gl/CsZjKt (from www.portfoliovisualizer.com - the short link includes some data entries)

-ERD50

Thanks, will try it out.

 

[NYEXPAT]

I don't care what the market or bonds return as long as we have volatility, I can make my numbers!

 

[Midpack]

IF I get a 4% return on equities and a 3.5% return on bonds WITH 2% inflation. I would be very happy. Inflation is the silent killer.

+2. My plan is based on 0-2% real returns. If we get 2% real or more, we’ll have it made.

 

[daylatedollarshort]

Not us, IMO. That is why the majority of our fixed income tranche is in TIPS.

We expect that in high inflation TIPS will do quite well, as Treasury will stop issuing them and panicked buyers will bid prices up well beyond what normal competitive YTM numbers would be.

We consider the small yield penalty we pay now to be an insurance premium, not an investment loss.

We have a a chunk of our portfolio in TIPS as well, plus a low fixed rate mortgage and property taxes under Prop 13. I have modeled high inflation in our spreadsheets and I think we would do well, if not come out ahead.

It is not just inflation that is the issue but real interest rates. If inflation is 12% but CDs are yielding 15% that doesn't seem like too bad of an investment scenario to me. We started basing our retirement plan on 2% real returns based on TIPS yields at the time, and moved that to .5% when rates went down, so I'm happy with the 1%+ real yields these days.

 

[Cut-Throat]

So, the 4% SWR is dead.... I have never seen any member of any Investment forum using this as an actual Withdrawal Tool.


This looks like a pretty good case for VPW to me.

 

[REWahoo]

My plan is based on 0-2% real returns. If we get 2% real, we’ll have it made.

My plan is based on future returns and inflation being no worse than the past ~190 years. If that happens, FIRECalc tells us we'll have it made.

 

[walkinwood]

So, the 4% SWR is dead.... I have never seen any member of any Investment forum using this as an actual Withdrawal Tool.


This looks like a pretty good case for VPW to me.

Exactly. Most adjust for portfolio performance whether they use a formal methodology (like VPW) or not. Then, as Bernicke and Blanchett have shown, spending (on average) decreases quite a bit as we age even when increased medical spending taken into account.



But it is in the interest of FAs that use AUM pricing to get you to increase your assets.

 

[Dtail]

So, the 4% SWR is dead.... I have never seen any member of any Investment forum using this as an actual Withdrawal Tool.


This looks like a pretty good case for VPW to me.

Agree, but the ancillary question is can folks still use the 4% rule or actually the reciprocal 25x expenses guideline in order to see if they are in good shape to retire?

 

[clifp]

Agree, but the ancillary question is can folks still use the 4% rule or actually the reciprocal 25x expenses guideline in order to see if they are in good shape to retire?

In your 60s yes, in your 50s possibly, and in your 40s probably not.

When you run FiREcalc quite a few lines are running out of money after 30 years, say under 400K. That won't be a problem for a 92 or 95 year old. A 40-year-old retiree will only be 70 and could easily have another 20 years left.