Vanguard’s chief economist Joe Davis said investors need to be prepared for a significant downturn in the stock market, which is now at a 70 percent chance of crashing. That chance is significantly higher than it has been over the past 60 years.
The economist added,“It’s unreasonable to expect rates of returns, which exceeded our own bullish forecast from 2010, to continue.” In its annual report, the company told investors to expect no better than four to six percent returns from stocks in the next five years. Vanguard, which manages roughly $5 trillion in assets and is a proponent of long-term investing, isn’t sounding the alarm bells to scare investors out of the market. They simply want investors to be prepared.
“The risk premium, whether corporate bond spreads or the shape of yield curve or earnings yields for stocks have continued to compress,” said Davis. “We’re starting to see, for the first time… some measures of expected risk premiums compressed below areas where we think it can be associated with fair value.“
According to RT, Davis also said that overreaching is no better a solution for a lower-return environment than getting out of the market entirely. He expressed worries that after hearing of “lower returns,” some investors will view that as a catalyst to become more aggressive to generate the returns they have been used to in recent years.
“You need to stay invested, because of lower expected returns,” Davis said, adding “Don’t become overly aggressive. The next five years will be challenging, and investors need to have their eyes wide open.”
…click on the above link to read the rest of the article…