Inspired by Harper’s Index (with a tip of the hat to FiveThirtyEight’s Significant Digits blog), Morningstar Runs the Numbers uses a numbers-based approach to highlight recent Morningstar research, along with some outside news stories.
Christine Benz interviewed Jack Bogle, and he shared his expectation that stock market returns are going to be much lower going forward than we’ve seen in recent years. He thinks 4% to 5% is reasonable range, and this is how he explained how he got to that number:
The dividend yield is about 1.8%, less than 2%. I’m looking for future earnings growth of around 5%. I don’t think we can do much better than that; maybe a lot better this year with the tax cut. Maybe a little bit better next year, too. But maybe 5%. So let’s call the dividend yield 2, and 5 is 7. By my numbers, that’s the investment return, 2% dividend yield, 5% earnings growth. That’s a 7% return.
If the price/earnings ratio is to go down a little bit, I think 1.5% off that 7% return, which would be a 5.5% return on stocks over that period. That’s a little higher than I’ve been using–maybe right, maybe wrong. I’ve usually been using about 4. But that’s a ballpark. It doesn’t really matter what we guess in these areas. There’s no precision in any of this. Let’s say in the 4% to 5% range is just for the fun of it, for stocks.
We forecast that a quarter of all vehicles sold in China will be electric by 2028. Who stands to benefit? Lithium producers, since all batteries will need the metal and utilities that will earn returns by building out the charging infrastructure.
Want $1 million stashed away in your 401(k)? Russ Kinnel shares seven key lessons to keep in mind to hit that milestones. One of the keys is patience.
Stay patient with your plan. Compounding rates of return are powerful but slow-moving forces. For them to work, you have to hold on through ups and downs. This is something that trips too many people up. Remember the “lost decade”? Investors didn’t make much money in equities between 2000 and 2010. That decade included two horrific bear markets that led some to throw in the towel. However, both bear markets were followed by dramatic rallies that helped investors cut their losses quickly provided that they stayed in the market.
Christine Benz explored little known ways to use HSA accounts, including starting at age 41 you can take out $780 a year to cover long-term care premiums. That amount ramps up to $1,560 for people age 51-60, $4160 for those 61-70 and then $5,200 a year after 71.
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