Jack Bogle’s 5 bold investment predictions for 2018 and beyond.

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Sandtrap
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Jack Bogle’s 5 bold investment predictions for 2018 and beyond.

Post by Sandtrap » Fri Dec 29, 2017 10:44 am

Jack Bogle’s 5 bold investment predictions for 2018 and beyond.
Article on CNBC
https://www.cnbc.com/2017/11/20/jack-bo ... eyond.html
YouTube Video interview.
https://www.youtube.com/watch?v=KZWX38OG9iE
Jack Bogle says the American market is a proxy for international markets and there is no better place to invest.
The Vanguard founder believes the U.S. stock market will enter a period of relatively low returns.
Impact investing, he says, is growing exponentially worldwide as more funds focus on this niche.

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Re: Jack Bogle’s 5 bold investment predictions for 2018 and beyond.

Post by snarlyjack » Fri Dec 29, 2017 1:41 pm

Sandtrap,

Thank you for posting these videos.

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JPH
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Re: Jack Bogle’s 5 bold investment predictions for 2018 and beyond.

Post by JPH » Fri Dec 29, 2017 2:02 pm

Interesting. He projects a 4% return for stocks and 3.1% for bonds. I occasionally regret that I am 65% in bonds, but this helps.
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Re: Jack Bogle’s 5 bold investment predictions for 2018 and beyond.

Post by btenny » Fri Dec 29, 2017 2:05 pm

What is Impact Investing?

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Re: Jack Bogle’s 5 bold investment predictions for 2018 and beyond.

Post by Dottie57 » Fri Dec 29, 2017 2:05 pm

JPH wrote:
Fri Dec 29, 2017 2:02 pm
Interesting. He projects a 4% return for stocks and 3.1% for bonds. I occasionally regret that I am 65% in bonds, but this helps.

Is this real return?

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Re: Jack Bogle’s 5 bold investment predictions for 2018 and beyond.

Post by Dottie57 » Fri Dec 29, 2017 2:06 pm

btenny wrote:
Fri Dec 29, 2017 2:05 pm
What is Impact Investing?

Googled it and it seems to be funds with a social impact of some key nd.

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Re: Jack Bogle’s 5 bold investment predictions for 2018 and beyond.

Post by oldzey » Sat Dec 30, 2017 12:43 pm

Thanks for sharing, Sandtrap!
"The broker said the stock was 'poised to move.' Silly me, I thought he meant up." ― Randy Thurman

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Re: Jack Bogle’s 5 bold investment predictions for 2018 and beyond.

Post by annielouise » Sat Dec 30, 2017 2:11 pm

Not exact quote, but pretty close. I had it written down in my checkbook register at the time.

I don't even know how to guess what the stock market will do in the future.

Jack Bogle, circa 2008

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Re: Jack Bogle’s 5 bold investment predictions for 2018 and beyond.

Post by staythecourse » Sat Dec 30, 2017 2:37 pm

JPH wrote:
Fri Dec 29, 2017 2:02 pm
Interesting. He projects a 4% return for stocks and 3.1% for bonds. I occasionally regret that I am 65% in bonds, but this helps.
What a projection down to the 1/10 of a %. Not sure if I should be impressed or unimpressed with anyone trying to make a prediction so exact on something that no one has consistently been good a predicting.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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Re: Jack Bogle’s 5 bold investment predictions for 2018 and beyond.

Post by Darion » Sat Dec 30, 2017 2:46 pm

The returns seem to be the same that Jack Bogle presents in Chapter 9 of his 10th Anniversary Edition of The Little Book of Commons Sense Investing that was just published. Chapter 9 provides the details on how he arrived at his estimates. I also believe they are nominal returns.

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Re: Jack Bogle’s 5 bold investment predictions for 2018 and beyond.

Post by mickeyd » Sat Dec 30, 2017 2:58 pm

I find predictions/projections like this of little value, even if they come from Jack. I plan to take no actions in my AA due to this revelation. Staying @ 45/45/10.
Part-Owner of Texas | | “The CMH-the Cost Matters Hypothesis -is all that is needed to explain why indexing must and will work… Yes, it is that simple.” John C. Bogle

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Re: Jack Bogle’s 5 bold investment predictions for 2018 and beyond.

Post by Sandtrap » Sat Dec 30, 2017 3:02 pm

JPH wrote:
Fri Dec 29, 2017 2:02 pm
Interesting. He projects a 4% return for stocks and 3.1% for bonds. I occasionally regret that I am 65% in bonds, but this helps.
Also 65% in bonds. Haven't rebalanced so off from my IPS 30/70. Makes me think of leaving it at 65% or even reallocate to 60%. But after doing the "numbers" on the variation between 36/65 and 40/60, it's not enough to really matter in the long run.
Do you agree?
j :D

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Re: Jack Bogle’s 5 bold investment predictions for 2018 and beyond.

Post by Ricola » Sat Dec 30, 2017 3:41 pm

Problem with any predictions is how to adjust for RTM. We are high now, by most anyone's standards. RTM is the unknown and it would be interesting to see some computations that take that into effect.

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Re: Jack Bogle’s 5 bold investment predictions for 2018 and beyond.

Post by kosomoto » Sat Dec 30, 2017 5:32 pm

How will bonds yield 3.1%? That will only happen if rates go down, and rates are going up. Bond yields should be lower than the current yield in the short run given rising rates.

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Re: Jack Bogle’s 5 bold investment predictions for 2018 and beyond.

Post by willthrill81 » Sat Dec 30, 2017 5:42 pm

While I've been a big U.S. equity proponent, ongoing research is making me really question this. The U.S. market is one of the priciest in the world, and from a historical perspective, it's more than likely that the international scene will significantly outperform the U.S. over the next decade or so.

Calling the U.S. market a proxy for international markets seems...perplexing to me. He seems to be basically saying that the returns of both should be equal over the long-term. If that really is the case, then Bogle should actually be advocating for investors to buy globally in order to increase their diversification. The added costs in doing so are now minimal.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Jack Bogle’s 5 bold investment predictions for 2018 and beyond.

Post by linenfort » Sat Dec 30, 2017 5:53 pm

Weren’t predictions already bleak at the end of last year? I can’t remember.
bogleheads, don't knock state lotteries. They helped defund the mafia.

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Re: Jack Bogle’s 5 bold investment predictions for 2018 and beyond.

Post by drk » Sat Dec 30, 2017 5:59 pm

mickeyd wrote:
Sat Dec 30, 2017 2:58 pm
I find predictions/projections like this of little value, even if they come from Jack. I plan to take no actions in my AA due to this revelation. Staying @ 45/45/10.
This is the correct response to stories such as this one. Mr. Bogle's predictions are worth as little as anyone else's, and it's odd to me that he makes them given that he made his name explaining that that was the case.

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Re: Jack Bogle’s 5 bold investment predictions for 2018 and beyond.

Post by LateStarter1975 » Sat Dec 30, 2017 6:02 pm

linenfort wrote:
Sat Dec 30, 2017 5:53 pm
Weren’t predictions already bleak at the end of last year? I can’t remember.
They were. A lot of pundits expected a correction or a bear market
Debt is dangerous...simple is beautiful

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Re: Jack Bogle’s 5 bold investment predictions for 2018 and beyond.

Post by David Jay » Sat Dec 30, 2017 6:14 pm

kosomoto wrote:
Sat Dec 30, 2017 5:32 pm
How will bonds yield 3.1%? That will only happen if rates go down, and rates are going up. Bond yields should be lower than the current yield in the short run given rising rates.
Yield goes UP when rates go up. Are you confusing NAV and yield?
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Re: Jack Bogle’s 5 bold investment predictions for 2018 and beyond.

Post by willthrill81 » Sat Dec 30, 2017 8:10 pm

LateStarter1975 wrote:
Sat Dec 30, 2017 6:02 pm
linenfort wrote:
Sat Dec 30, 2017 5:53 pm
Weren’t predictions already bleak at the end of last year? I can’t remember.
They were. A lot of pundits expected a correction or a bear market
"It is very hard to predict, especially about the future."
- Danish proverb

I largely ignore short-term predictions made by anyone about what will happen in asset classes of any kind. But over the long-term, I would not set my expectations for U.S. equity returns at 7% real; the arithmetic involved does not support that, though anything can happen. I find it better to lower your expectations and plan accordingly; if your returns turn out to be higher, then you'll be pleased.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Jack Bogle’s 5 bold investment predictions for 2018 and beyond.

Post by munemaker » Sat Dec 30, 2017 8:13 pm

"Nobody knows nuttin'."

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Re: Jack Bogle’s 5 bold investment predictions for 2018 and beyond.

Post by drk » Sat Dec 30, 2017 8:32 pm

willthrill81 wrote:
Sat Dec 30, 2017 5:42 pm
Calling the U.S. market a proxy for international markets seems...perplexing to me. He seems to be basically saying that the returns of both should be equal over the long-term. If that really is the case, then Bogle should actually be advocating for investors to buy globally in order to increase their diversification. The added costs in doing so are now minimal.
Right. If nothing else, reversion to the mean would suggest that we should expect ex-US to outperform US.

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Re: Jack Bogle’s 5 bold investment predictions for 2018 and beyond.

Post by staythecourse » Sat Dec 30, 2017 8:46 pm

willthrill81 wrote:
Sat Dec 30, 2017 5:42 pm
Calling the U.S. market a proxy for international markets seems...perplexing to me. He seems to be basically saying that the returns of both should be equal over the long-term. If that really is the case, then Bogle should actually be advocating for investors to buy globally in order to increase their diversification. The added costs in doing so are now minimal.
Bingo. This definitely fails the "smell" test of common sense. You don't have to know anything about investing or finance. If one is saying all else being equal they returns of the two are similar (which is supported by history and theory) then why wouldn't you want to be better diversified? You hit it on the head that cost of international investing is very low compared to the 80's so why wouldn't you do it? The ONLY answer is simple... Home country bias.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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Re: Jack Bogle’s 5 bold investment predictions for 2018 and beyond.

Post by WanderingDoc » Sat Dec 30, 2017 10:02 pm

Sandtrap wrote:
Fri Dec 29, 2017 10:44 am
Jack Bogle’s 5 bold investment predictions for 2018 and beyond.
Article on CNBC
https://www.cnbc.com/2017/11/20/jack-bo ... eyond.html
YouTube Video interview.
https://www.youtube.com/watch?v=KZWX38OG9iE
Jack Bogle says the American market is a proxy for international markets and there is no better place to invest.
The Vanguard founder believes the U.S. stock market will enter a period of relatively low returns.
Impact investing, he says, is growing exponentially worldwide as more funds focus on this niche.
What would Jack Bogle say about investing in cryptoassets?

It makes me wonder if Jack and Warren's advice is primarily foe their own age demographic or thereabouts?

If someone who is 30 years old can afford to lose $20K five times over, why SHOULDN'T they speculate on something that could turn a $20K investment into $500K or more?
Don't wait to buy real estate. Buy real estate, and wait. | Rent where you live, buy where others pay your mortgage for you.

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Re: Jack Bogle’s 5 bold investment predictions for 2018 and beyond.

Post by kiddoc » Sat Dec 30, 2017 10:16 pm

CNBC being typically naive in terms of "predictions". Jack Bogle makes long term predictions based on actual earnings yield + speculative yield based on P/E ratios. He typically qualifies this as a long term prediction (decades) and says he could be wrong. This is not a 2018 prediction. This kind of long term predictions have been reasonably accurate over centuries. Bill Bernstein tracks this from the Roman civilization in the Four Pillars of Investing.
"The four most dangerous words in investing are: 'this time it's different.'" - Sir John Templeton

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Re: Jack Bogle’s 5 bold investment predictions for 2018 and beyond.

Post by grog » Sat Dec 30, 2017 10:33 pm

Dottie57 wrote:
Fri Dec 29, 2017 2:05 pm
JPH wrote:
Fri Dec 29, 2017 2:02 pm
Interesting. He projects a 4% return for stocks and 3.1% for bonds. I occasionally regret that I am 65% in bonds, but this helps.

Is this real return?
I think it was actually nominal if I understood him correctly. There’s a dividend yield of 2 and change plus earnings growth of maybe 4-5% (historical is about 6% but he thinks that’s too optimistic). That gives about 7%. Then the 4% was with P/E reversion.

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Re: Jack Bogle’s 5 bold investment predictions for 2018 and beyond.

Post by TimeRunner » Sat Dec 30, 2017 10:39 pm

I predict that Vanguard Total World ETF (VT) will be within 0.2% of the global FTSE Global All Cap Index until the fund closes in the next Century or two.
"What'd ya expect in an opera, a happy ending?" -Bugs Bunny

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Re: Jack Bogle’s 5 bold investment predictions for 2018 and beyond.

Post by Sandtrap » Sat Dec 30, 2017 10:41 pm

willthrill81 wrote:
Sat Dec 30, 2017 5:42 pm
While I've been a big U.S. equity proponent, ongoing research is making me really question this. The U.S. market is one of the priciest in the world, and from a historical perspective, it's more than likely that the international scene will significantly outperform the U.S. over the next decade or so.

Calling the U.S. market a proxy for international markets seems...perplexing to me. He seems to be basically saying that the returns of both should be equal over the long-term. If that really is the case, then Bogle should actually be advocating for investors to buy globally in order to increase their diversification. The added costs in doing so are now minimal.
That may be the reasoning for the introduction of Vanguard Global Wellesley and Wellington?
j :D

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Re: Jack Bogle’s 5 bold investment predictions for 2018 and beyond.

Post by Quantumfizz » Sat Dec 30, 2017 11:32 pm

WanderingDoc wrote:
Sat Dec 30, 2017 10:02 pm
Sandtrap wrote:
Fri Dec 29, 2017 10:44 am
Jack Bogle’s 5 bold investment predictions for 2018 and beyond.
Article on CNBC
https://www.cnbc.com/2017/11/20/jack-bo ... eyond.html
YouTube Video interview.
https://www.youtube.com/watch?v=KZWX38OG9iE
Jack Bogle says the American market is a proxy for international markets and there is no better place to invest.
The Vanguard founder believes the U.S. stock market will enter a period of relatively low returns.
Impact investing, he says, is growing exponentially worldwide as more funds focus on this niche.
What would Jack Bogle say about investing in cryptoassets?

It makes me wonder if Jack and Warren's advice is primarily foe their own age demographic or thereabouts?

If someone who is 30 years old can afford to lose $20K five times over, why SHOULDN'T they speculate on something that could turn a $20K investment into $500K or more?

Agree -from Ari Paul, whose resume is ridiculous (Susquehanna, PM for U Chicago):

I get frustrated when financial professionals say that cryptocurrency is "too risky." All that matters to investors is the marginal risk contribution of an asset to the total risk of the portfolio. Consider that many of the equities in the Russell 2000 index are extremely risky in isolation, but the idiosyncratic risks are diversified away in the basket. Since cryptocurrency's risks are largely idiosyncratic, in small size it can actually *reduce* the risk of the overall portfolio due to its near zero correlation.

Investors are generally compensated for taking beta, duration, or illiquidity risk. With cryptocurrency they are compensated for taking regulatory and operational risk, as well for dealing with the complexity and lack of accessibility. This is about as close to the holy grail of portfolio construction as you can get. Of course - you can argue that cryptocurrency has negative expected return, and that's a fine reason to reject it as part of a portfolio. But if a person say it's "too risky" without reference to a particular sizing, it suggests they skipped portfolio theory 101.

I suspect index investing (stock only) will eventually see the day where it is an underwhelming avenue to take in terms of total portfolio risk adjusted return optimization.

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Re: Jack Bogle’s 5 bold investment predictions for 2018 and beyond.

Post by grog » Sat Dec 30, 2017 11:40 pm

willthrill81 wrote:
Sat Dec 30, 2017 5:42 pm
While I've been a big U.S. equity proponent, ongoing research is making me really question this. The U.S. market is one of the priciest in the world, and from a historical perspective, it's more than likely that the international scene will significantly outperform the U.S. over the next decade or so.

Calling the U.S. market a proxy for international markets seems...perplexing to me. He seems to be basically saying that the returns of both should be equal over the long-term. If that really is the case, then Bogle should actually be advocating for investors to buy globally in order to increase their diversification. The added costs in doing so are now minimal.
As far as I know there is no iron law that says that returns for publicly traded companies worldwide must revert to some common mean. I recall Jack making comments to the effect that Europe is too socialist, Japan has declining demographics, emerging markets are corrupt, etc. Essentially, that many foreign markets have handicaps and risks that are uncompensated. That’s all debatable, but it’s not a crazy opinion given that the US is the premiere economic power.

It should be true that global investors must earn the global aggregate return, but that return could be siloed by country. I guess the question is if the capital markets are globalized and efficient to the point of equalizing returns to capital. It seems like this would not be the case if so-called home country bias is prevalent or if there are practical constraints.

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Re: Jack Bogle’s 5 bold investment predictions for 2018 and beyond.

Post by kosomoto » Sun Dec 31, 2017 12:07 am

David Jay wrote:
Sat Dec 30, 2017 6:14 pm
kosomoto wrote:
Sat Dec 30, 2017 5:32 pm
How will bonds yield 3.1%? That will only happen if rates go down, and rates are going up. Bond yields should be lower than the current yield in the short run given rising rates.
Yield goes UP when rates go up. Are you confusing NAV and yield?
We can play the semantics game if you want but I’m sure you knew what I meant. How will bonds return 3.1% if NAV is decreasing with interest rates and current sec yield is lower than 3%?

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Re: Jack Bogle’s 5 bold investment predictions for 2018 and beyond.

Post by David Jay » Sun Dec 31, 2017 9:44 am

kosomoto wrote:
Sun Dec 31, 2017 12:07 am
David Jay wrote:
Sat Dec 30, 2017 6:14 pm
kosomoto wrote:
Sat Dec 30, 2017 5:32 pm
How will bonds yield 3.1%? That will only happen if rates go down, and rates are going up. Bond yields should be lower than the current yield in the short run given rising rates.
Yield goes UP when rates go up. Are you confusing NAV and yield?
We can play the semantics game if you want but I’m sure you knew what I meant. How will bonds return 3.1% if NAV is decreasing with interest rates and current sec yield is lower than 3%?
Did you even glance at the article or did you just latch onto the "2018" in the opening post? The text (and even the headline on the bond prediction) clearly stated "over the next 10 years".

Bonds typically recover their NAV (at the new, higher yield) within their duration. Every thing except LT bonds will fully recover within the decade.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Re: Jack Bogle’s 5 bold investment predictions for 2018 and beyond.

Post by watchnerd » Sun Dec 31, 2017 1:41 pm

staythecourse wrote:
Sat Dec 30, 2017 2:37 pm
JPH wrote:
Fri Dec 29, 2017 2:02 pm
Interesting. He projects a 4% return for stocks and 3.1% for bonds. I occasionally regret that I am 65% in bonds, but this helps.
What a projection down to the 1/10 of a %. Not sure if I should be impressed or unimpressed with anyone trying to make a prediction so exact on something that no one has consistently been good a predicting.

Good luck.
My personal projection spreadsheet predicts 4.7% for a 70% stock / 30% treasuries port in 2018.
Tax Sheltered: 35% US Stock | 35% ex-US Stock | 30% Int. Treasuries || Taxable: 20% US Stock | 20% ex-US Stock | 40% Int. Treasuries | 20% Munis

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Re: Jack Bogle’s 5 bold investment predictions for 2018 and beyond.

Post by Watty » Sun Dec 31, 2017 3:57 pm

JPH wrote:
Fri Dec 29, 2017 2:02 pm
Interesting. He projects a 4% return for stocks and 3.1% for bonds. I occasionally regret that I am 65% in bonds, but this helps.

Having the father of index funds make stock market predictions is an oxymoron.

If that was at all doable then there would be little need for most index funds.

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Re: Jack Bogle’s 5 bold investment predictions for 2018 and beyond.

Post by kosomoto » Sun Dec 31, 2017 4:02 pm

David Jay wrote:
Sun Dec 31, 2017 9:44 am
kosomoto wrote:
Sun Dec 31, 2017 12:07 am
David Jay wrote:
Sat Dec 30, 2017 6:14 pm
kosomoto wrote:
Sat Dec 30, 2017 5:32 pm
How will bonds yield 3.1%? That will only happen if rates go down, and rates are going up. Bond yields should be lower than the current yield in the short run given rising rates.
Yield goes UP when rates go up. Are you confusing NAV and yield?
We can play the semantics game if you want but I’m sure you knew what I meant. How will bonds return 3.1% if NAV is decreasing with interest rates and current sec yield is lower than 3%?
Did you even glance at the article or did you just latch onto the "2018" in the opening post? The text (and even the headline on the bond prediction) clearly stated "over the next 10 years".

Bonds typically recover their NAV (at the new, higher yield) within their duration. Every thing except LT bonds will fully recover within the decade.
I'm well aware of the 10 year return time period mentioned. The duration of the long term corporate bond fund mentioned is 13.5 years, and the yield is lower than Bogle stated, it's 3.5%. Not to mention very few people here actually use long term corporate bonds. I'm still not seeing a 3.1% return in a 10 year period with rising interest rates.

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Re: Jack Bogle’s 5 bold investment predictions for 2018 and beyond.

Post by truenorth418 » Sun Dec 31, 2017 4:38 pm

More predictions of the future by Mr. “Nobody Knows Nothin’”.

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Re: Jack Bogle’s 5 bold investment predictions for 2018 and beyond.

Post by Noobvestor » Sun Dec 31, 2017 7:10 pm

grog wrote:
Sat Dec 30, 2017 11:40 pm
willthrill81 wrote:
Sat Dec 30, 2017 5:42 pm
While I've been a big U.S. equity proponent, ongoing research is making me really question this. The U.S. market is one of the priciest in the world, and from a historical perspective, it's more than likely that the international scene will significantly outperform the U.S. over the next decade or so.

Calling the U.S. market a proxy for international markets seems...perplexing to me. He seems to be basically saying that the returns of both should be equal over the long-term. If that really is the case, then Bogle should actually be advocating for investors to buy globally in order to increase their diversification. The added costs in doing so are now minimal.
As far as I know there is no iron law that says that returns for publicly traded companies worldwide must revert to some common mean. I recall Jack making comments to the effect that Europe is too socialist, Japan has declining demographics, emerging markets are corrupt, etc. Essentially, that many foreign markets have handicaps and risks that are uncompensated. That’s all debatable, but it’s not a crazy opinion given that the US is the premiere economic power.

It should be true that global investors must earn the global aggregate return, but that return could be siloed by country. I guess the question is if the capital markets are globalized and efficient to the point of equalizing returns to capital. It seems like this would not be the case if so-called home country bias is prevalent or if there are practical constraints.
The only reason US/intl may seem relatively equal over long periods is because of start/end point bias and the fact that the US has had a 'relatively average' (but slightly above) return over the last century - in short: it wasn't an outlier. Some have done much better, others much worse. The world may or may not revert to any kind of common mean, but by investing globally you can avoid outliers.

As for all the market-specific reasons (corruption, demographics, etc...) where does it end? If you can pick markets, why not sectors or stocks? Or: if you have strong feelings about which country is 'better' to invest in than others, there's no reason not to extend that market-beating insight into national market selection. But personally, the idea that the market can't price the risks of particular national markets efficiently is bizarre.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

TravelforFun
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Re: Jack Bogle’s 5 bold investment predictions for 2018 and beyond.

Post by TravelforFun » Sun Dec 31, 2017 7:16 pm

Can someone remind me what Mr. Bogle's predictions were for 2017?

TravelforFun

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Re: Jack Bogle’s 5 bold investment predictions for 2018 and beyond.

Post by sambb » Sun Dec 31, 2017 7:31 pm

TravelforFun wrote:
Sun Dec 31, 2017 7:16 pm
Can someone remind me what Mr. Bogle's predictions were for 2017?

TravelforFun
Agree, would be nice to know. I listen and I think this lowers his credibility. How is he to know? Anyway, it is always nice to see positive predictions regardless. What was his track record last year? I believe in March of 2017, at dow 21000, he thought the market was fully valued.

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Re: Jack Bogle’s 5 bold investment predictions for 2018 and beyond.

Post by willthrill81 » Sun Dec 31, 2017 8:55 pm

Noobvestor wrote:
Sun Dec 31, 2017 7:10 pm
grog wrote:
Sat Dec 30, 2017 11:40 pm
willthrill81 wrote:
Sat Dec 30, 2017 5:42 pm
While I've been a big U.S. equity proponent, ongoing research is making me really question this. The U.S. market is one of the priciest in the world, and from a historical perspective, it's more than likely that the international scene will significantly outperform the U.S. over the next decade or so.

Calling the U.S. market a proxy for international markets seems...perplexing to me. He seems to be basically saying that the returns of both should be equal over the long-term. If that really is the case, then Bogle should actually be advocating for investors to buy globally in order to increase their diversification. The added costs in doing so are now minimal.
As far as I know there is no iron law that says that returns for publicly traded companies worldwide must revert to some common mean. I recall Jack making comments to the effect that Europe is too socialist, Japan has declining demographics, emerging markets are corrupt, etc. Essentially, that many foreign markets have handicaps and risks that are uncompensated. That’s all debatable, but it’s not a crazy opinion given that the US is the premiere economic power.

It should be true that global investors must earn the global aggregate return, but that return could be siloed by country. I guess the question is if the capital markets are globalized and efficient to the point of equalizing returns to capital. It seems like this would not be the case if so-called home country bias is prevalent or if there are practical constraints.
The only reason US/intl may seem relatively equal over long periods is because of start/end point bias and the fact that the US has had a 'relatively average' (but slightly above) return over the last century - in short: it wasn't an outlier. Some have done much better, others much worse. The world may or may not revert to any kind of common mean, but by investing globally you can avoid outliers.

As for all the market-specific reasons (corruption, demographics, etc...) where does it end? If you can pick markets, why not sectors or stocks? Or: if you have strong feelings about which country is 'better' to invest in than others, there's no reason not to extend that market-beating insight into national market selection. But personally, the idea that the market can't price the risks of particular national markets efficiently is bizarre.
And over the long-term, mean reversion seems to be one of the hallmarks of stock returns (e.g. Siegel's finding that the three ~70 year periods he examined had returns within one percent of each other).

While valuation metrics like CAPE are far from perfect predictors of market returns, on a country by country basis, they have been remarkably accurate in forecasting future returns. Countries with a high CAPE have a fairly strong tendency to have lower returns going forward, while the inverse is true of countries with low CAPE. That being said, 'overvalued' markets can continue to go up for a long while, and 'undervalued' markets can remain in the dumpster for years.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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