Bogle on The Next Decade

In an interview with Nightly Business Report, Vanguard founder John Bogle says he expects stocks to return an average of about 8% per year for the next decade, and adds that U.S. stocks may be a bit undervalued, with international markets a bit overdone.

Bogle tells Susie Gharib that he doesn’t do one-year market forecasts because the market is too unpredictable in the short term. “But I do in my new book do an outlook for the decade,” he says. “And I believe that stocks will return something like 7 to 9 percent during the coming decade, because the dividend yield is 2 percent today … a little above that and earnings growth should be around six. So that would give us an 8 percent business return to underpin the market. So I think that’s a reasonable expectation for stocks in the coming decade. Whether they get any of that this coming year, who knows.”

Bogle also says the recent crisis has shown that investors are their own worst enemies, making decisions based on short-term, recent performance. He estimates that about 90% of mutual fund inflows in 2009 went to bonds; investors who focused on bonds missed out on the huge stock market rally. And when it came to stock funds, he said investors on the whole have put money into international funds, but taken money out of U.S. funds. “So I would regard that as … a sign that maybe international is getting overdone and U.S. markets are a little bit undervalued,” he said.

As for how to invest going forward, Bogle offers these tips:

  • Don’t put your money in last year’s winners;
  • Don’t put your money in high cost funds;
  • Bond returns will be smaller than stock returns in the coming decade, but bonds offer needed stability to your portfolio;
  • Rely on the “wisdom of long-term investing and forget the folly of short-term speculation because it’s a loser’s game”.

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