From the Financial Times via Investors Chronicle (UK):
John Bogle, the founder of giant index-tracking fund manager Vanguard, has dismissed the idea that investors can expect 9 per cent a year from the US stock market simply because that's what it has delivered on average over the past century.
Writing in the Financial Times, he says that a "reasonable expectation" of nominal returns for US investors over the coming decade is merely 7 per cent. He writes: "Even if we accept the belief that past market returns are an accurate representation of reality, the idea that future returns will centre round the past is an illusion."
He points out that the 9 per cent a year that the US market has historically delivered came from a combination of roughly 4.5 per cent from dividend yields and 4.5 per cent from earnings growth.
With the US market now only yielding around 2 per cent, a key element of that return has been slashed in half. Mr Bogle combines the 2 per cent yield with an estimated future earnings growth rate of 5 per cent to reach his lowered expectation for a total return of 7 per cent. And where the US market goes, the UK will probably follow.