The AP writes: "People ought to be very conscious of the mathematics of investing," Bogle, who now runs Vanguard's Bogle Financial Markets Research Center, said in a recent interview. "But they so often ignore it."
He acknowledges that his 1 percent to 2 percent return calculation isn't a hard rule, because it's based on many of the variables affecting market performance. But it's instructive for understanding why an investor's net returns pale in comparison to market returns.
Here's a look at Bogle's math: Stocks have averaged 9 percent to 10 percent gains, but Bogle figures 7 percent is more realistic over the next several years. He cites the current muted forecast for economic growth, as the nation slowly recovers from the recession and struggles to get government deficits under control.
Subtract at least 2 percent for inflation, and the annual gain shrinks to 5 percent. Historically, inflation has averaged 2 to 3 percent. That's in line with current inflation — the rate fell to zero during the recession.
Bogle says most investors should subtract an additional 2 percent, to cover expenses for professionals who manage money, advise investors, and handle trades. The investor's return is then shaved to 3 percent….
http://www.theledger.com/article/20111215/NEWS/111219527?p=2&tc=pg
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