John Bogle, founder of mutual-fund pioneer Vanguard Group, says investors can look forward to stock-market gains of 4 percent a year for the next decade.

He says that investors will be unwilling to overpay for earnings and dividends from publicly traded companies, making gains hard to come by. By comparison, the S&P 500 has tripled in value since bottoming in March 2009 as the U.S. struggled to recover from the worst recession in 80 years.

In an interview with Morningstar’s personal finance editor Christine Benz, he says his assumption is based on a 2 percent dividend yield for the S&P 500 and earnings growth of 5 percent.

Cutting into that 7 percent return will be a 3 percent loss from “multiple compression,” meaning investors will buy stocks at a lower price-to-earnings ratio. The market’s P/E multiple is likely to fall to a longer-term average of 15 times from about 20 now.

“We've got a 4 percent return for stocks — maybe a little bearish, but we just don't know — and a 3 percent return for bonds. That's a 3.5 percent return on a balanced 50-50 portfolio,” Bogle says.

Unfortunately, investors need to consider fund-management fees that will also cut into returns.

Despite the subdued forecast, Bogle says, “Invest we must,” because inflationary forces will eat away at savings.

Investors should take serious note of Bogle’s forecast, says MarketWatch reporter John Coumarianos.

“The biggest lesson is that investors must save more to meet their goals. The markets are unlikely to do the heavy lifting that they’ve done in the past with prodigious returns,” he writes. “As for pensions, which continue to plug the customary 7.5 percent returns in their forecasts for balanced allocations, investors should disregard their forecasts completely.”

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