What does this legendary investment pioneer expect in the way of investor returns over the next decade? And what does Jack advise for a successful retirement strategy?
In 1971 I started in the institutional research and trading business at Model Roland in Boston. In those days, Jack had not yet left my favorite institutional client, Wellington Management. Near the end of the decade, Jack Bogle did indeed depart Wellington to found Vanguard.
Here The Wall Street Journal’s Holman W. Jenkins offers a wonderful profile of Mr. Bogle and his importance to investors around America:
At age 87, Mr. Bogle is marking his 65th year as an industry leader. His relationship with the Vanguard colossus he created has rewarmed after a period of hard feelings. And that prediction of four decades ago is coming true. The mutual-fund industry is slowly liquidating itself—except for Vanguard. Mr. Bogle happily supplies the numbers: During the 12 months that ended May 31, “the fund industry took in $87 billion . . . of which $224 billion came into Vanguard.” In other words, “in the aggregate, our competitors experienced capital outflows of $137 billion.”
Don’t imagine a revisitation of the ’80s or ’90s, when stocks returned 18% a year and investors, after the industry’s rake-off, imagined they “had the greatest manager in the world” because they got 14%. Those planning on a comfy retirement or putting a kid through college will have to save more, work to keep costs low, and—above all—stick to the plan.
Mr. Bogle finds today’s stock scene puzzling. Shares are highly priced in historical terms; earnings and economic growth he expects to disappoint for at least the next decade (he sees no point in trying to forecast further). And yet he advises investors to stay invested and weather the storm: “If we’re going to have lower returns, well, the worst thing you can do is reach for more yield. You just have to save more.”
Mr. Bogle relies on a forecasting model he published 25 years ago, which tells him that investors over the next decade, thanks largely to a reversion to the mean in valuations, will be lucky to clear 2% annually after costs. Yuck.
Mr. Bogle’s own portfolio consists of 50% stocks and 50% bonds, the latter tilted toward short- and medium-term.