If you're a huge fan of making unreasonably large piles of money, like me, or a self-described "Boglehead," you'll know that the legendary investor John C. "Jack" Bogle, of Vanguard Group, recently released his expected returns forecast, with extensive commentary, for the next decade.
Bogle, of course, has been doing these forecasts and commentaries for years, and it has to be said that he's far more accurate than many financial crystal-ball-gazers out there.
Here's his secret: Bogle takes the current dividend yield, factors in a growth estimate for earnings, and measures what he calls "speculative return."
If the price-to-earnings (P/E) ratio goes up, there's a positive expected return. On the other hand, if Bogle thinks the ratio will compress over the next decade, he'll call a negative speculative return that he subtracts from the earnings and dividend calculator.
It works pretty well. Now, he doesn't necessarily nail returns precisely to the last percentage point, but Bogle does have a knack for conveying the prevailing bullish or bearish conditions over the next decade.
But here's the thing: As much as I respect Bogle's experience and accurate track record, we've got a big difference of opinion.
You see, I think his return expectations, which I'll show you in a minute, are too low.
Essentially, Bogle and the "Boglehead" investors following along are settling for less – far less – than the unreasonable returns possible in a market like this.
Let me show you what kind of profits are possible – and how you can get at them…
Why Would Anyone Settle for Returns Like This?
In this year's forecast, Bogle calls for 4% returns in stocks and 3% in bonds over the next decade.
I'll tell you, that's very disconcerting, given that his 1999 forecast was for 5% stock returns. It means his expectations are lower now than they were back then.
So, if Bogle is anywhere near accurate, a blended "classic" portfolio of 60% stocks and 40% bonds is going to average about 3.6% a year.
Market-Crushing Returns: One recent recommendation closed out for a 995% win. Click here to learn more…
Trouble is, it's 2017: Valuations are higher, the economy is growing very slowly, and interest rates are about as low as they can go.
To put it mildly, that's not a favorable starting point for the average investor.
Now, here's where the index-loving Bogleheads and I part company.
Join the conversation. Click here to jump to comments…
About the Author
Tim Melvin is an unlikely investment expert by any measure. Raised in the "projects" of Baltimore by a single mother, he never attended college and started out as a door-to-door vacuum salesman. But he knew the real money was in the stock market, so he set sights on investing - and by sheer force of determination, he eventually became a financial advisor to millionaires. Today, after 30 years of managing money for some of the wealthiest people in the world, he draws on his experience to help investors find "unreasonably good" bargain stocks, multiply profits, and build their nest eggs. Tim tirelessly works to find overlooked "hidden gems" in the stock market, drawing on the research of legendary investors like Benjamin Graham, Walter Schloss, and Marty Whitman. He has written and lectured extensively on the markets, with work appearing on Benzinga, Real Money, Daily Speculations, and more. He has published several books in the "Little Book of" Investment Series and a "Junior Chamber Course" geared towards young adults that teaches Graham's principles and techniques to a new generation of investors. Today, he serves as the Special Situations Strategist at Money Morning and the editor of "Max Wealth" and Heatseekers.
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