Tags: Jack Bogle | Stocks | Yield | Investors

Jack Bogle: Investors Must Brace for 4 Percent Annual Returns

Jack Bogle: Investors Must Brace for 4 Percent Annual Returns
(AP/Mark Lennihan)

By    |   Friday, 24 March 2017 08:59 AM

Investing guru Jack Bogle warns that the stock market will return only 4 percent annually during the next decade

"It doesn't mean you should stop investing, but it means you should be investing in accordance with the expectation of lower returns in the future,” he recently told CNBC.

“And if you're wrong and if I'm wrong and the returns are higher, well, you're just going to have a terrible problem: Your nest egg is going to be larger than you would have ever expected," he said.

"Just for mathematical reasons, the dividend yield is 2 percent, a little under 2 percent in fact, and the long-term dividend yield on stocks is pretty close to 4,” he told CNBC.

“The earnings growth on stocks has been a little over 5, that's going to be a very tough target in the future so let's call it 4 ... 4 and 2 percent give you a 6 percent investment return, but then you have to take ... the valuations in the market,” he explained.

“You take that 6 percent return and maybe knock it off a couple of points perhaps for a lower valuation, slightly lower valuation over a decade and you're talking about a 4 percent nominal return on stocks. And that's low, lower than history. History is around 6 and a half," he said.

Meanwhile, there are obvious signs that some investors are getting nervous about the market.

Lipper data for U.S.-based funds showed on Thursday that U.S.-based taxable bond funds absorbed $8.3 billion in cash during the week ended March 22, the most in eight months, while investors withdrew $1.3 billion from financial sector funds in the worst week of net sales for those funds since July 2015, Reuters reported.

In both cases, the latest week's results are an about-face from the popular trades that followed President Donald Trump's election victory in November and come as investors questioned whether the new U.S. administration can soon deliver the fiscal and regulatory changes needed to support the "Trump trade" of higher equity prices and rising bond yields, Reuters reported.

"As investors have become more skeptical or wary of the ability of the president to drive through his policy agenda that's started to have negative impact on some of the areas in the U.S. which had benefited from that hope," Richard Turnill, BlackRock Inc's global chief investment strategist, told Reuters.

(Newsmax wire services contributed to this report).

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Investing guru Jack Bogle warns that the stock market will return only 4 percent annually during the next decade.
Jack Bogle, Stocks, Yield, Investors
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2017-59-24
Friday, 24 March 2017 08:59 AM
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