John Bogle Says Invest, But Tamp Down Expectations
In a Wall Street Journal interview, John Bogle, the famous founder of Vanguard Group, said he expects stocks to return an average annual return, including dividends, of about 7% over the next decade. (It’s truly time for people who came of age as investors during the 1990s to let go of that halcyon time of double-digit returns!)
“Diversification is not only the first important thing investors should think about, but the second and the third, and probably the fourth and fifth, too,” he said. He explained that it is worth taking the risk of betting against the collective judgments of other investors only when you know far more than they do about an investment. For most people, this won’t happen very often.
For the buy-and-hold philosophy to work, it must be applied not just to stocks but across an entire portfolio, including bonds and other assets, he said. That is because the stock market is, above all else, “spasmodic,” in his words.
Shifting emotions, global concerns
Early in the week, the Web was consumed by the Census Bureau’s report that poverty had reached a 50-year high.
Then the question preoccupying the buzz-makers became, What’s next? Another recession? By week’s end, indications of a weak U.S. economy had been overtaken by hope that European leaders will be able to avert a financial crisis there. News broke of a plan to lend dollars to Eurozone banks.
What happens to investments when the news is bad? People yank their money. Covering Morningstar’s monthly report on mutual funds, Reuters pointed out that August marked the most severe mutual fund outflows since November 2008. ETFs gathered assets, but at a slower pace. We wonder where those yanked assets are sitting now.
We believe investors should look critically at their mutual fund holdings, but what’s going on here has little to do with critical thinking, and more to do with following the herd. If the news is so frightening you feel the need to do something, consider drops in the market as an opportunity to tweak your portfolio in search of bargains. See: Here’s Who Should Sell and Why Volatility Is The New Norm.
End of the ride for U.S. equities?
U.S. equities are crucial, yes, but add international equities to your thinking. This Economist columnist posits that the reason for U.S. equities’ historically high returns was the nation’s position as history’s winner in the 20th century.
The effect of money
That giant sucking sound you hear is Wall Street vacuuming up the top college graduates. The pay is so much higher in finance that it proves irresistible even to people whose natural inclinations lean toward science or technology. (Average wages at the big banking firms for employees in securities are upward of $300,000, and average bonuses for everyone top $120,000 a year, according to the New York State Comptroller.)
What happens when the smartest minds end up on Wall Street? It’s not good for the economy or even the markets, say both of these tongue-in-cheek (or are they?) pieces. Harvard MBAs infiltrating Wall Street at near record rates and Wall Street smarts.
12 excuses for being broke
Finally, thanks to Liz Weston for this link to a piece by Trent Hamm on all the nonsensical reasons people give for not saving and investing.
About the author(s)
Journalist Elizabeth MacBride is Wealthfront's editor. Her work has appeared in Crain's New York, Advertising Age, the Washington Post and the Christian Science Monitor, among other publications. View all posts by Elizabeth MacBride