John Bogle, the legendary founder of Vanguard Group, doesn’t have high hopes ahead for financial markets.
He predicts 7 percent annual returns for stocks and 5 percent for bonds — before inflation. With his forecast for 2.5 percent inflation, that translates into real returns of only 4.5 percent for stocks and zero for bonds.
“These are the most difficult investment conditions I’ve ever seen,” Bogle tells Morningstar.com.
Editor’s Note: Prophetic Economist Warns: “It’s Curtains for America.” See Evidence.
He didn’t elaborate, but presumably he’s referring to the global economic slowdown that many experts believe will continue for several years and the massive deleveraging occurring in the United States.
So what should investors do to maximize their returns? Bogle doesn’t like the idea of taking on much more risk.
But one low-risk move you can make is switching to high-grade corporate bonds from Treasurys. That would increase your yield to a range of 2.5 to 3 percent from one of 1.5 to 2 percent.
In addition, you might extend your bond maturities. “Maybe take a little more maturity risk, which is not credit risk, just volatility risk,” Bogle says.
Other experts recommend blue-chip dividend stocks as a low-risk strategy to boost returns.
MarketWatch columnist Meena Krishnamsetty cites five stocks that offer attractive dividend yields, haven’t fallen in price this year and have seen at least one significant insider purchase.
The list includes Old Republic International, AT&T, Integrys Energy Group, DTE Energy and Alliant Energy.
…….read more Bogle Sees 7% Returns on Stocks, 2% on Bonds
The Size of Major Bull Markets
Back in 2009, we ran this Financial graphart‘s terrific chart of Bear Market Comparisons, 1929-2009. When we put it up way back in early February 2009, there were still 2 weeks left in the 2009 bear. (Its updated here).
Well, in what might not be too auspicious a sign, today we run a new chart called “The Size of Major Bull Markets”. It’s similar to the prior one, only flipped around.
via:
John Paul Koning Financial Graph & Art, October 19, 2012 www.financialgraphart.com
The Bull Case for Safe Havens
“Government securities are the default safe haven in times of heightened risk aversion. But what happens when Government finances are the cause of the tension? Where are the safe havens then?”
Dylan Grice makes the case that “over time, whats good for the currency and for government finances (bonds) should be good for the rest of the economy (equities) and vice versa.”
The problem is that the last ten years were an outlier, and that goverment bonds have benefited from their “safe haven” status:
The correlation should be positive. Indeed, the following chart shows that the correlation generally has been positive, averaging +0.2 between 1875 and 2002, but -0.3 since 2002 (for the whole period, the average was +0.15). see chart below
Given this outlier status, Investors need to be on the lookout for when government securities lose their safe haven status.
Source:
The bull case for safe havens Dylan Grice Popular Delusions Société Générale, October 23, 2012
