What Might John Bogle Expect From Today's Market?

Feb. 25, 2021 9:50 AM ET3 Comments
Ralph Wakerly profile picture
Ralph Wakerly


  • The late John Bogle formulated a long-term market return forecast based on “Occam’s Razor."
  • Although Bogle had mixed results, the approach is interesting, instructive and provides a glimpse into what we might expect for the U.S. market over the coming 10 years.
  • The model suggests Base Case, Pessimistic and Optimistic annual returns ranging from 1.0% to 6.4% for the S&P 500 index.
  • Forecasting and timing are not foundations for successful investing. We should all be skeptical of forecasts and adhere to time-tested, long-term principles.

The late John Bogle is one of my investment heroes. He pioneered the first index fund back in 1976 and founded investor-owned Vanguard, now the home for 30 million investors and $6.2 trillion in assets. Bogle was known as a fierce ally of the personal investor and led a transformation of the fund industry. He advocated a solid and common-sense approach to investing.

Throughout his illustrious and long career he commented occasionally on expected stock returns. His method was based on Occam’s Razor, which states that the simpler the explanation, the more likely it is to be correct.

What might Bogle say now about the U.S. market outlook? Before looking ahead, let’s review the approach and look back to see what it has taught us.

Occam’s Razor Applied to Market Returns

Bogle applied this principle using the following variables:

  • The dividend yield at the time of the initial investment
  • The subsequent rate of earnings growth
  • The change in the Price-Earnings ratio during the period of the investment

In one of my favorite investing books, Common Sense on Mutual Funds, published in 1999, Bogle said:

"Since 1802, annual real (after inflation) returns on stocks have settled near an average of 7 percent, though with awesome interim variation – a high of 67 percent in 1862 and a low of -39 percent in 1931. Huge though it may be, that range of 106 percentage points can serve as a powerful reminder of short-term market risk in the stock market.”

Bogle explained that the 7% real return is almost identical to the sum of real dividend yields and earnings growth during the period of 1871-1997, which adjusted for inflation was 6.7%. So why the large return variations around this steady earnings and dividend growth rate? Bogle said:

“They were caused by the

This article was written by

Ralph Wakerly profile picture
Wakerly is an investor, entrepreneur and consultant with over 35 years of investment experience. Utilizes a macro-style, passive, index-based asset allocation investment style, with a value orientation and contrarian bent. Manages/advises on family portfolios collectively valued in the eight-figure range. B.S. Engineering and MBA in investments from University of Illinois. 11,000+ hours of investment management and research. Accomplished entrepreneur, consultant and business owner. Wakerly has a passion to help individuals improve their financial literacy and investing skills and besides writing for SeekingAlpha and Advisor Perspectives has presented at universities, churches and various webinars.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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