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Rekenthaler Report

Bogle: Stocks 6%, Bonds 3%

Bogle’s forecasts may not be reliable guides for any specified time period, but they will likely be close to the mark over the longer term.

Two Estimates
This month, the Journal of Portfolio Management published "Occam's Razor Redux: Establishing Reasonable Expectations for Financial Market Returns." (Sorry, the link is to an abstract only.) Authored by Jack Bogle and Michael Nolan Jr., the article projects U.S. stocks to gain about 6% over the next decade. Bonds figure to make half as much, 3%. Both of those figures are in nominal terms--that is, they are not adjusted for inflation.

The article's bond model is simplicity itself: Future returns = Current yield to maturity. The yield to maturity on 10-year Treasuries was 2.4% when the paper was written, which Bogle and Nolan round up to 3%. (A generous nudge, which can perhaps be justified by the addition of higher-yielding credit bonds.) As today's 10-year Treasury yield is 2.3%, that estimate remains valid.