Tags: Vanguard | low | return | environment

Vanguard CEO to Investors: Days of Outsize Returns Are Over

By    |   Sunday, 02 November 2014 06:12 PM

While financial markets have soared since the 2008-09 financial crisis, with the S&P 500 index tripling from its March 2009 lows, don't expect more of the same, says Vanguard Group CEO Bill McNabb.

"We’re in a low-return environment, and investors need to adjust their behavior accordingly," he told MarketWatch.

"I think equities are going to [return] 7 percent a year, in that range over the next 10 years. Long bonds are, best case, going to return 2.5 percent a year or something like that. Take a balanced portfolio with those two main components, you’re looking at 5 percent to 5.5 percent."

That will probably equate to a real (inflation-adjusted) return of about 3.5 percent, below the long-term average of about 4 to 6 percent, McNabb said.

"So we’re on the low end of normal, if not below normal, and I’m not sure anybody’s really thinking about that," he said. "You’ve got a huge swath of people getting ready to retire. The market’s not going to bail you out if you haven’t saved enough. That to me is a huge concern."

The Vanguard Balanced Index fund has returned 11.7 percent a year on average over the past five years.

To be sure, even long-term investment strategies can go awry, says Geoff Warren, research director of the Centre for International Finance and Regulation.

"Arguably, the biggest dangers relate to incorrect expectations about what the long-term holds," he said, according to Money Management of Australia.

"The distant future is hard to predict, and investing based on a false premise can lead to money being lodged in an investment that underperforms for an extended period before the error is recognized."

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While financial markets have soared since the 2008-09 financial crisis, with the S&P 500 index tripling from its March 2009 lows, don't expect more of the same, says Vanguard Group CEO Bill McNabb.
Vanguard, low, return, environment
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2014-12-02
Sunday, 02 November 2014 06:12 PM
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