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What Drives Investment Return?
MicNOVANovember 19, 2014
1
Earnings
Dividends
P/E Ratio
2
0.8%
-3.4%
3.3% 0.3%
-6.3%
9.3%
-1.0%
-7.5%
7.7% 7.2%
-3.0% -2.5%
0.1%
-10%
-5%
0%
5%
10%
15%
Market Return: S&P 500 Total
9.0%
2.9%
14.8%
-0.8%
8.6%
20.1%
7.6% 5.9%
17.3% 17.8%
-1.3%
15.5%
9.3%
-5%0%5%
10%15%20%25%
Speculative Return: Impact of P/E Change
4.7% 2.0% 5.6%
-5.6%
9.9% 3.9% 5.5%
9.9% 4.4% 7.4%
0.6%
16.0%
5.4% 3.5%
4.3%
5.9%
4.5%
5.0%
6.9% 3.1%
3.5%
5.2% 3.2%
1.2%
2.0%
3.8%
-10%-5%0%5%
10%15%20%
8.2% 6.3% 11.5%
-1.1%
14.9% 10.8%
8.6% 13.4%
9.6% 10.6%
1.7%
9.2%
18.0%
Historical Sources of Stock Market Returns over the Decades
1900s 1910s 1920s 1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000s 1900 –
2014 Avg
Investment Return: Dividend Yield and Earnings Growth
Returns 1-1
2010s (9/2014)
Source: Jack Bogle 2014
3
1%
10%
100%
1000%
10000%
100000%
1000000%
10000000%Investment ReturnMarket Return
1900
1920
1940
1960
1980
2000
9/20
14
9.24% / Year 9.58% / Year
Market Return vs. Investment Return, 1900-9/2014 Returns
1-2
Source: Jack Bogle 2014
4
0.42
1.69
0.47
1.56
0.53
3.34
1.42
-
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
1961
U.S. Stock Market Return / Investment Return, 1900-9/2014
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 9/2014
Returns 1-3
1917
1921
1948 1979
2001
2014
S&P 500 Price $6 $15 $72 $108 $1145 $1993
Source: Jack Bogle 2014
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0.1
1
10
100
1000
Investment ReturnSpeculative Return
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 9/2014
Cumulative Total Return Investment and Speculative Return, 1900-9/2014
$ Value of Initial $1
Returns 1-4
6.1% Annual Real Return
0.4%
Source: Jack Bogle 2014
6
$0.61
$0.98
$0.44
0.84
0.51
0.71
0.59
$1.56
$1.41
$28.85
$21.91
$38.49
0.1
1
10
100
1940 1950 1960 1970 1980 1990 2000 9/2014 1926
$
-55% -39% -17%
-10%
-24%
S&P 500 Dividend Growth, 1926-9/2014 Fundamentals
2-2
Source: Jack Bogle 2014
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$5,066,915
$154,565
100
1,000
10,000
100,000
1,000,000
10,000,000S&P 500 Total Return
S&P 500 Capital Return
Dividends Matter! S&P 500 Total Return and Capital Return, 1926-9/2014
$ Growth of an initial investment of $1,000
Fundamentals 2-3
Source: Jack Bogle 2014
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Category Net Yield Expense Ratio Gross Yield
Percentage of Yield
Consumed by Expenses
Domestic Stock 0.7% 1.2% 1.9% 63%
International Stock 1.1 1.4 2.5 56
Taxable Bond 2.0 0.9 2.9 31
Municipal Bond 2.9 0.9 3.8 24
Balanced 1.7 1.1 2.8 39
Dividend Yields and Expense Ratios*, 9/2004 Fundamentals
2-4
*Source: Morningstar
Source: Jack Bogle 2014
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Impact of Expenses on Total Return over 30 yrs
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
1,000,000
1,100,000
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
8% Return 0.25% Fee 0.9% Fee 1.4% Fee
$1,006,266
$938,682
$782,860
$680.325
10
Costs Reduce Return
Source: Vanguard
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Further Study• http://www.bogleheads.org
• http://vimeo.com/channels/bogleheads
• http://morningstar.com (seach for “jack bogle video”)
• Little Book of Common Sense Investing - Jack Bogle
• Bogleheads’ Guide to Investing, 2d edition 2014
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