Jack Bogle Makes Market Prediction For Next Decade

I don’t usually post market forecasts, but I just wanted to jot this one down for posterity. Jack Bogle, founder of Vanguard, is interviewed in a WSJ article Why a Legendary Market Skeptic Is Upbeat About Stocks where he makes a prediction of 7% annual returns for stocks for the upcoming decade. He correctly predicted 10%+ gains for the 1990s, and also low single-digit returns for the 2000s. Let’s see if he’s correct for the 2010s.

Over the next decade, Mr. Bogle said stocks are likely to generate an average annual return, including dividends, of around 7%. “Your money will double in 10 years,” he said. “How bad is that? People ought to get over the illusion [of higher expectations] and realize that they may have to invest for longer time periods, start earlier and save more.”

There other good observations in the article, although they won’t surprise any Bogle followers. I previously wrote about Bogle’s future return prediction methodology where total stock returns are the sum of earnings growth (aligns with GDP growth), dividend yield, and P/E ratio changes. The diagram below is reproduced from his 2007 book Little Book of Common Sense Investing, which also shows us a 7% forward prediction at the time. Well, we’ve got some catching up to do…

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Comments

  1. Everything I thought I knew about stocks has basically been upturned during my first decade of investment. I shunned bonds like an idiot. While I haven’t lost money, my plans for retirement have changed dramatically. It makes me long for those delicious defined pension plans. I especially think that the sacrifice of joining the military is just worth it for the retirement; especially if you get a guaranteed federal job afterwards.

    20 years in the military after college.
    Retire and get 40K a year in today’s dollars
    Take an easy federal job as a GS12 or stressful as a GS15
    Earn 70-120K plus your 40K in retirement
    Pay in 6% of your GS salary to the retirement fund
    Retire and collect 30% of your highest salary after 20 years of work
    From age 42 to age 62 you brought in 2 million minimum
    From age 62 until death you bring in 60K a year
    At 67 you get social security
    Lifetime healthcare and tax free shopping
    I am DEFINITELY pushing my kids into ROTC

  2. So, is Jack going to put his personal money where his mouth is?

  3. Justin, can vets really get a “guaranteed” federal job? I honestly don’t know. Is it just ‘very easy’ or really ‘guaranteed’ or maybe only ‘pretty easy’ to get a fed. job as a vet?

  4. I really am not sure about 7%. With everything that is going on not only in the US but also with the European Debt issues, I just do not think that 7% is realistic. It could be if everything comes back, but there is so much debt, it would take a huge jump in production and taxes to see 7% gains without the negative effect of some countries (Greece, Spain, Portugal and Italy) defaulting on their debt.

  5. Vets do get preference for government jobs over the public–it’s something Uncle Sam promised in return for service. However, that doesn’t mean that a vet is “guaranteed” a job–he still has to qualify for it. For example, when someone fills out an application for employment, he is rated on a point scale based on his skills, experience and education. Then, the vet is given an additional 5-10 points “free” for his service. The non-vet does not get those extra points, so it makes it harder to beat out a vet for a fed job. The government also goes to bat for the vet in other ways-disability, exempted, internal transfer, etc. Hard to get in as a civvie these days as everyone wants the job stability.

  6. Bogle is 82 with 6 heart attacks and 80% bonds. He’s always said that as a general rule, “Age in bonds”, so that’s putting his money where his mouth is as well. Honestly, I think the industry will be lucky if he is around to see the end of his prediction.

  7. People ought to get over the illusion [of higher expectations] and realize that they may have to invest for longer time periods, start earlier and save more.

    I’m still trying to decide if that quote is insightful or just trite.

    To be fair, the average American is completely unprepared for retirement. Not just monetarily, but emotionally and psychologically. For these people such a quote may be insightful.

    For people who really know what they want out of retirement and their lives, the quote is definitely just trite.

  8. Two certainties for the next decade: market fees and volatility. Everything else is speculation and prediction.

  9. Not only do you get vet preference, but you have likely held several high level leadership positions, so you will almost always get a management job above everyone else. It is definitely not the case for more technical jobs, such as engineering, but at that point, you’re moving from technical skills to management anyhow if you follow a normal corporate career path.

  10. and taxes. :)

  11. Matthew C. Waterman says:

    I think he’s actually being pretty conservative in his estimate, but he could also be looking at this from the point of adjusting for inflation. It’s laughable that anyone here actually thinks they know well enough to disagree with him.

  12. No one can make more then 7% a year? Off the top of my head I suggest investing in MO and PM and you will do quite well going forward. With over a 6% divy for MO and 4.5 for PM gettting another 1% and 2.5% respectively would not be terribly hard.

    If your looking to make 7% going forward as an index investor, good luck. 7% would be good in that case going forward

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