Today’s Wall Street Journal had an article, which focused on John Bogle, founder of Vanguard—a money management company that focuses on index funds.
The article contained two ideas that I wish to share:
- Bogle believes in a forecasting model that he published 25 years ago, which tells him that investors over the next decade will be lucky to clear 2% annually after costs—Yuck!
- The trend against managed accounts has been pronounced not only so far in 2016 but over the past decade. According to Bank of America, $600 billion in investor cash has exited actively managed funds since the 2008 crash, while $961 billion has flowed into index-style investments of the sort pioneered by Vanguard. During the 12 months that ended May 31, 2016 Vanguard received $224 billion, and Vanguard’s competitors lost $ 137 billion.
In conclusion, while I agree with Bogle that index funds should be a core for much of our investment activity, I certainly hope that he is wrong on his outlook that equities will only return 2% over the next decade.
Originally published in the Sarasota Herald-Tribune