John Bogle predicts two 50 percent declines in the market over the next 10 yearsArticle added by Roccy DeFrancesco on May 15, 2013
Roccy Defrancesco

Roccy DeFrancesco


Joined: May 24, 2006

I’m sure many of you will want to use Mr. Bogle’s quotes when discussing the proper tools to help your clients grow and protect their wealth.

Most financial planners know John (also known as Jack) Bogle. Bogle is the founder and senior chairman of Vanguard and is known by many as the godfather of index funds.

Why index funds? As Motley Fool puts it, over 80 percent of the mutual funds don’t beat the indexes.

If that’s the case, and as Bogle would recommend, why not just put your money in index funds?

If index funds are less volatile than mutual funds and stocks and have a history of higher returns, what’s the argument for not using them?
  • In 2008, the S&P 500 Index was down 37 percent.
  • The S&P 500 was down over 50 percent from the highs of 2008 to the lows of 2009.
  • From 1999-2008, the S&P 500 averaged a negative rate of return (a lost decade).
Bogle’s amazing prediction

A few weeks ago, Bogle went on CNBC and made the most amazing statement. He predicted two 50 percent corrections in the stock market over the next 10 years. Don’t believe me? Look at a screen shot from his TV appearance:

Here is an equally amazing quote from this TV appearance:
    “Don’t worry about what stocks are doing today, tonight or tomorrow ... look out a decade. It requires some guts to do this.”
Is that what you are telling your clients when you tell them how you can help them grow their wealth? Don’t worry about today, have some guts and after a decade, you should be OK?
If Bogle is correct, then why would anyone in their right mind invest in the stock market without some strategy to avoid his predicted 50 percent declines?

Here is what advisors should ask clients when discussing investing in the stock market: "Should you take more risk than is necessary to reach your financial goals?" The obvious answer to this question is no.

If the answer is no, does it make sense to invest in even the least volatile stock index if there is no protection from the next two 50 percent corrections Bogle is predicting? No!

A better way?

Sure. For clients who are 55 and younger, they can use a “good” equity indexed universal life (EIUL) policy to grow wealth. A “good” policy from 1999-2008 would have had nearly a 6 percent rate of return at a time when the S&P 500 averaged a negative rate of return.

For those over 55, they could look to use fixed indexed annuities (FIAs) with income riders. There are still FIAs in the market that have guaranteed rates of return of 6 percent to 8 percent with roll up periods that range from 10-20 years, coupled with a guaranteed income for life that the client can’t outlive.

And last year, I found a low risk (0.30 percent Beta) high return (returns that have averaged more than the S&P for the last five-, 10- and 20-year periods) non-correlated money management platform that advisors are using to capture millions of assets under management.

Any of the above three would be better than just leaving your clients in the market with the hopes that it doesn’t correct twice over the next 10 years.

I hope that you found this article to be interesting, and I’m sure many of you will want to use Mr. Bogle’s quotes when discussing the proper tools to help your clients grow and protect their wealth.
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