Comments on: Bogle and Buffett’s Modest Expectations

By: ghost

ghost — Mon, 28 Jul 2008 14:07:25 +0000

I have read somewhere else that Bogle and Buffet expected lower returns in the future. It is good to finally see the source of those comments and the reasoning they give.

My question is, if you expect between a roughly 7%-8% return far into the foreseeable future, why not just look for bonds that pay that much and hold them in a non-taxable account?

By: miked

miked — Mon, 23 Jun 2008 12:42:37 +0000

Go back to 1994 and you will find that Bogle and Buffet made almost the same predictions. Tempered expectations are OK (mine certainly are) but there are so many variables involved that it is simply impossible to predict returns over the next 10 years. They could be double digit (maybe even 20%) or negative. As bad as things look today, the picture may be 100% different 365 days from now and people will suffer from unrealistic expectations. In 2004 the mantra was single digit equity returns. 04,05 and 06 turned out to be great years. In the end, invest according to your time horizon and risk tolerance, keep costs low and don’t obsess over the daily movements. I think that is what people like Bogle and Buffet really preach. They only answers the “prediction” questions when put on the spot or for a book and they always caveat the answer by stating that no one knows for sure.

Someone referred to the Canadian Banks as a great investment. Global competition is going to hurt them in the long run, imo.

By: Anon

Anon — Fri, 20 Jun 2008 13:21:29 +0000

I do not agree that in 100 years the banks will [b]necessarily[/b] have more customers and more fees to collect.

Competition from online banks may reduce fees and profits. New entrants from overseas, Walmart, etc. may reduce the customer base of each individual bank.

Finally, a black swan may eat one or more of our big 5 Canadian banks over the next 100 years.

By: Weekend Reading - June 20, 2008 | Million Dollar Journey

Weekend Reading - June 20, 2008 | Million Dollar Journey — Fri, 20 Jun 2008 09:31:19 +0000

[...] tells us to expect modest market returns going forward as explained in his article “Bogle and Buffett’s Modest Expectations“. The most interesting part of the article is that Warren Buffett himself is a big advocate [...]

By: slickvguy

slickvguy — Fri, 20 Jun 2008 05:11:54 +0000

What WEB doesn’t point out is that even at modest rates of return, if the Dow does return about 7% per year for the next 92 years, it would be over 5,000,000 !

Put me in the nobody knows camp. As big a fan as I am of WEB and Bogle, when they talk like this they just prove to me that they’re SOMETIMES fallible humans just like the rest of us.

For a guy who preaches not caring about macro factors, WEB sure has been making a lot of big picture predictions lately. Hmmm….

By: DividendMan

DividendMan — Thu, 19 Jun 2008 16:55:18 +0000

Hrm – I’m skeptical about this as well. Just look at the Canadian banks right now, you can get a 5% yeild just from the dividends, and I think we can agree that in 100 years the banks will have more customers and more fees to collect, so they probably have some capital gains potential. But like thrifty said, I think Buffet et al. are referring to the American markets.

By: Canadian Capitalist

Canadian Capitalist — Thu, 19 Jun 2008 15:03:50 +0000

DGI: “Nobody knows” is absolutely right. But we’re talking about odds here and the odds are very high that Bogle and Buffett are likely right. Also, I understand long-term as at least 20 years. The problem for equity investors today is dividend yields are low and valuations are about average. That does imply modest returns.

Ben: I meant to say “My rationale for the RRSP contributions first…”. There is absolutely nothing wrong with choosing to pay down the mortgage over RRSP contributions. In fact, like you point out, it may even be the better alternative.

By: Thrifty

Thrifty — Thu, 19 Jun 2008 14:51:44 +0000

CC, I believe both of your references are talking about US stock market. How is the developing world return going to be is unknown. For people pursuing anything more than 5%, it pays to understand emerging markets.

By: Ben

Ben — Thu, 19 Jun 2008 14:48:49 +0000

I too have early retirement dreams (early morning canoeing on a misty lake), so wouldn’t advocate anyone completely cease RRSP contributions. In my case, I prefer to go a little overweight on mortgage right now, and underweight on RRSP:

a) certainty of income disruption in the coming few years to start a family,
b) I am young, and retirement is less important to me right now than assuring household stability,
c) low interest rates mean opportunity to reduce principle more easily now than after rate renewal,
d) uncertain economic times and job security make expense reduction more important (lower monthly payments upon rate renewal)
e) low expectations of stock returns, and
f) guaranteed after-tax no-risk return on mortgage return vs. equity risk with slightly higher return.

It’s all about balance, and that balance can (and should) shift as one progresses through life’s stages. As my mortgage decreases, I would expect to once again increase my RRSP’s.

My philosophies: marry a “coupon queen”, maintain cash cushion for life’s curveballs, spend on what you value not on consumption (hopefully they are not one and the same), track monthly expenses and earnings to ensure positive cashflow, direct positive cashflow to the mortgage, and skim RRSP contributions directly off paycheque.

By: Dividend Growth Investor

Dividend Growth Investor — Thu, 19 Jun 2008 14:18:56 +0000

It’s very interesting how successfull investors who have riden the bull markets of their times always forecast “lower” returns ahead. Nobody knows where the market is going to be 10 years from now. Period. And by the way Buffett has always shown skepticicm about long-term returns of the stock market.
I believe that a well diversified portfolio with large cap, mid cap, small cap domestic and international stocks plus some bond allocation would do the trick of performing well over the next several years. ( oh yeah add some real estate, private equity and timber to the mix too if you want)