In an interview on Nightly Business Report last night, Vanguard Founder John “Jack” Bogle comments on the investment follies of the decade coming to a close and expressed positive views on prospects for returns from common stocks in the decade ahead. Mr. Bogle is the most prominent advocate for index funds which seek to match broad market indices at low cost.
While most value investors aim for market beating results, the vast majority of investors following other investment styles would be better off in index funds if the alternative is to fall into the psychological traps that often result in disaster. Here are a few excerpts from the interview:
Prospects for Stocks
I don’t do one-year market outlooks because the year is unpredictable. But I do in my new book do an outlook for the decade. 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, around 2 percent, 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.
Pitfalls to Avoid
Don’t put your money in last year’s winners. Don’t put your money in high cost funds. Remember in asset allocation that bonds are there to help you, although bond returns will be smaller than stock returns in the coming decade. They’ll give you an element of stability. And just be careful and invest for the long term or put it another way, rely on the wisdom of long-term investing and forget the folly of short-term speculation because it’s a loser’s game.
Click on this link for the full transcript of the interview.