### Bogle’s Razor

**September 21, 2016** - Bonds, Equity Premium

How (and what) does John Bogle think about the stock and bond markets over the next decade? In their October 2015 article entitled “Occam’s Razor Redux: Establishing Reasonable Expectations for Financial Market Returns”, flagged by a subscriber, John Bogle and Michael Nolan revisit simple models for expected stock market and government bond returns first published in 1991. The stock market model distinguishes between: (1) investment return, defined as initial dividend yield plus expected annual earnings growth rate; and, (2) speculative return, defined as annual percentage change in price-to-earnings ratio (P/E). The government bond model uses the initial interest rate as a reasonable expectation for return over the life of the bond. In both models, the investment horizon is a decade. They update performances of the models to include the 25 years since publication and apply them to determine expectations for stock and bond market returns over the decade ahead. Using data for the stock market since 1871 and for 10-year U.S. Treasury notes (or equivalent) since 1915, both through 2014, *they find that:* Keep Reading