It’s tough to make predictions

Especially about the future, as the much-missed Yogi Berra observed. And it’s probably a good idea to take any market predictions with a block of salt.

Case in point: Jack Bogle’s latest prediction for stock returns for the next decade. Bogle’s a smart guy, and his tireless crusade against high mutual fund costs has benefited millions. That doesn’t make him any better at seeing the future than anyone else.

Crystal-BallAnd, because he’s a much-loved figure among investors, he doesn’t usually get called on his predictions. Dan Wiener, editor of The Independent Adviser for Vanguard Investors, did just that. And guess what? His record is just as bad as anyone else’s. Some examples, with Wiener’s comments in bold:

  • July 20, 1992: Bogle says that the 1990s will have above-average returns on bonds and below average returns on stocks. His numbers suggest 8.6% for stocks though he modifies that and says he thinks it could be around 10%.[Vanguard’s 500 Index returned an annualized 18.1% in the 10 years through 1999, and 17.3% in the 10 years through 2000.]
  • Feb. 20, 1995: Bogle notes that in 1966 the Dow stood at 1000 and it crossed that mark again in 1983. As he puts it, “So much for predicting where the market will be in 12 months when we couldn’t have predicted its movement over 17 years.” Then he goes on to say, “But I would expect the Dow to be down about 10% from present levels.”  [The Dow index rose 38.1% over the next year. On a total return basis it gained 41.5%]
  • October 1996: Bogle predicts 6% to 8% returns for stocks for each of the next three years. “I think it is at least possible that we will be sitting here around 6000 [on the Dow] from some years” he says.[Vanguard’s 500 Index fund returned an annualized 26.5% over the next three years and the Dow crossed 11000. Even at the end of the popping of the tech bubble the Dow never say 6000 again. In fact, it never saw 7000. It bottomed at 7286 and was over 8000 one week later. Even if you look from Oct. 14 1996 when the Dow first crossed 6000 to the bottom of the Financial Crisis when the Dow hit 6547.05, the index still produced a return including dividends of 41.1%. That’s not great, at just 2.8% compounded, but it’s a return.]
  • May 23 1999: Bogle says investors should be happy if they get a 6-7% return on stocks over the next decade[Jack finally gets one right. Over the next decade Vanguard’s 500 Index fund lost 1.8% annualized.]
  • December 15, 2011: Bogle says stocks could generate 7% returns over the next several years[Vanguard’s 500 Index returns an annualized 20.2% over the three years ending in Dec. 2014 and is up an annualized 16.3% from the end of Dec. 2011 through Oct. 2015.]

    Bogle would be the first to tell you that market timing is a bad idea. He’d also tell you to invest regularly in low-cost funds. That’s the Bogle advice you should follow.

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