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Jack Bogle’s 4% Annual Return Forecast For Stocks Could Prove To Be Heroically Optimistic
I’m a big fan of Jack Bogle. Like Warren Buffett, I believe he been nothing less than a “hero” to individual investors. That said, CNBC reported this week that “Jack Bogle believes the stock market will return only 4% annually over the next decade.” But I think there’s good reason to believe even that meager return could prove to be heroically optimistic.
Here’s the more detailed reasoning behind his forecast:
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 … 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. …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.
First of all, I’m not exactly sure where Jack gets his 5% earnings growth number from. If you look at Robert Shiller’s data the compound annual growth rate of earnings has been 3.78% over the past 145 years. I agree that it’s going to be tough to match this number going forward thus his 4% forecast is probably still far too optimistic.
The post Jack Bogle’s 4% Annual Return Forecast For Stocks Could Prove To Be Heroically Optimistic appeared first on Silver For The People.
Source: http://silveristhenew.com/2017/03/25/jack-bogles-4-annual-return-forecast-for-stocks-could-prove-to-be-heroically-optimistic/
