The "unremitting" buzz around Vanguard Group founder John C. Bogle's well-publicized prediction -- that stocks will likely yield only an average 6%, bonds 3%, over the next ten years, with U.S. stocks "as low as 4% before inflation," as he recently told Morningstar Inc. --
sent veteran Vanguard-watcher Daniel P. Wiener, publisher of the Independent Adviser for Vanguard Investors newsletter, scurrying to extract past Bogle return projections and evaluate their accuracy - "something no one else appears to have done," Wiener claims.
The New York-based investment publisher's conclusion: "Bogle isn't always right. In fact, he's almost never right," and often underestimates. Wiener lists past examples culled from AP, Dow-Jones, CNBC, Vanguard's own materials and other news and investment sources:
- December 15, 2011: Prediction: 7% stock returns over the next several years. Actual: 20.2% annualized over the next three years
- May 23, 1999: Prediction: 6-7% stock returns over the next decade, tops. Actual: -1.8% annualized
- October 1996: Prediction: 6-8% stock returns in each of the next three years. Actual: 26.5% annualized.
- Feb. 20, 1995: Prediction: "I would expect the Dow to be down about 10%" over the next year. Actual: "The Dow index rose 38.1%," or 41.5% including dividends.
- July 20, 1992: Prediction: 1990s will have below-average returns for bonds and above average for stocks, the latter in the 8.6%-10% annual range. Actual: stocks returned 17.3%/year for 1991-2000.
Based on that mostly too-conservative record, Bogle "should get out of the predictions business," Wiener concludes.
How have the low-cost index-fund founder's predictions tested? The question is "timely to a fault," Bogle tells me: The Journal of Portfolio Management just published an update of Bogle's 1991 paper on "establishing reasonable expectations" --"not predictions," he points out -- for "decade-long returns on stocks and bonds."
Whatever he may have said in "casual" mode to TV or told commentators, Bogle maintains that his "only official numbers" are his 10-year projections, complied from the Bogle Sources of Return Model for Stocks based on dividends, earnings growth levels, and projected changes in price/earnings ratios (based on how much higher/lower than longterm averages prices are at a period's start).
Bogle admits he "got it wrong" in predicting, back in 1991, the progressive disappearance of speculative volatility. If anything the rise of index stock funds alongside faster-trading stocks and fast-turnover exchange-traded funds has been accompanied by higher highs and some scary lows, feeding new theories of behavioral finance and volatility.
And yet Bogle's 25-year data shows strong correlation, he maintains in the latest update of his paper, to his 9% target from the 1991 paper: the market returned 9.6% for 1990-2015, 8.6% (using necessarily shakier data sets) for 1871-2015. P/E ratios are predictable over longer periods; volatility disintegrates as returns revert to the longterm means. At times "what will happen in the stock market is obvious, but predicting exactly when" will make you broke.
Wiener scoffs at the shortterm/longterm distinction. A prediction's a prediction, he says, seeing little merit for the small investor in long ideas.
Bogle is now predicting far lower returns over the next ten years because that's what his simple model predicts, based mostly on low and declining dividend yields; also high P/E ratios. If the market happens to be high now, it's less likely to go higher over the next ten years; it will likely revert to the mean. So pension funds and other institutions should set lower targets; and invest in Vanguard-style low-fee index funds, he concludes, as usual.
Want to test it? "Please mark your calendar to email me on November 6, 2025," Bogle, who is 86, told me.
"If I don't reply promptly, send the note to Wiener. And to my co-author at Vanguard," Michael Nolan, Bogle's aide for the past five years and for the first time coauthor of "Occam's Razor Redux," the latest update on Bogle's 1991 paper, in the fall issue of the Journal of Portfolio Management (corrected).