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Above the noise: expect stabilization, not stagnation
6/23/2018 11:38:20 PM
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By Fund Library News Wire  | Thursday, June 08, 2017


By Bill McNabb, Chairman and CEO, Vanguard Group, Inc.

In my 30-plus years at Vanguard, I’ve said it countless times: “Tune out the noise.” And it’s not just me. Everybody from Jack Bogle to Warren Buffett will tell you that to be a successful investor, you have to focus on the long term and not get swept up in short-term market fluctuations. But filtering out the noise doesn’t mean disengaging altogether. In an increasingly complex and interconnected world, it’s vital that investors hear the signal of meaningful information through the static of market chatter.

Investors do benefit from taking note of long-term trends that stand to influence our economies and markets in the years to come. Vanguard watches these trends closely, and we discussed our assessment in our recent 2017 global economic and market outlook.

Our outlook: Expect stabilization, not stagnation

One trend in particular that we’re watching is the low-growth, low-interest-rate environment that has marked the global economy since the 2008-09 financial crisis. We don’t think this economic backdrop was simply the result of cyclically weak demand or long-term stagnation.

Instead, certain structural forces are contributing: Falling technology costs are limiting businesses’ capital spending, an aging population is weighing on growth in the developed world, and the free movement of capital and products across the globe is suppressing prices and wages. And – despite some of the enthusiasm we’ve seen in markets lately, particularly in the United States – these forces are likely to continue to dampen growth, inflation, and interest rates.

The upside

I realize this all may sound gloomy, but that’s not how we see it. We expect global growth to stabilize at more modest levels, not stagnate. The world isn’t headed for Japanese-style deflation, in which a widespread sustained drop in prices puts economic activity into hibernation.

In fact, we believe that global growth could pick up modestly over time. Our expectation is based on a potential rebound in productivity as new digital technologies get used more effectively. We also anticipate a slight recovery in the labour force as the baby-boom generation finishes its transition to retirement, nudging up demand for workers.

Prepare for subdued returns

And what about prospects for the markets? Vanguard’s outlook for global stocks and bonds remains the most guarded in 10 years, given fairly high equity valuations and the current interest-rate environment.

This outlook isn’t bearish but is actually fairly positive when you take into account interest rates that are still low by historical standards.

Making sense of uncertainty amid the future’s shifting tides

Significant trends often unfold gradually. Like shifting tides, they’re sometimes barely noticeable at first but ultimately can end up changing the landscape entirely. Other times, apparent trends recede before they have much of a long-term impact. That’s what can make the future so hard to predict. It’s also why you should be skeptical of definitive, pinpoint projections about what’s going to happen.

I know that some investors, especially in the wake of a year marked by political surprises in the United States, United Kingdom, and elsewhere, would prefer a little more certainty. But such certainty is bound to be just an illusion.

As Warren Buffett – whose recent shareholder letter featured kind words for Vanguard’s founder – likes to say, “Uncertainty is the friend of the buyer of long-term values.”

F. William McNabb III is Chairman and Chief Executive Officer of Vanguard Group Inc.

Notes and Disclaimer

© 2017 by Fund Library. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited. This article first appeared on the Vanguard Group, Inc.’s website. Used with permission.

Important information

The views expressed in this material are based on the author’s assessment as of the first publication date (April 2017), are subject to change without notice and may not represent the views and/or opinions of Vanguard Investments Canada Inc. The author may not necessarily update or supplement his views and opinions whether as a result of new information, changing circumstances, future events or otherwise.

All investments are subject to risk, including the possible loss of principal.

Any “forward-looking” information contained in this material should be construed as general investment or market information and no representation is being made that any investor will, or is likely to achieve, returns similar to those mentioned in this material or anticipated in this material.

While this information has been compiled from sources believed to be reliable, Vanguard Investments Canada Inc. does not guarantee the accuracy, completeness, timeliness or reliability of this information or any results from its use.

This material is for informational purposes only. This material is not intended to be relied upon as research, investment, or tax advice and is not an implied or express recommendation, offer or solicitation to buy or sell any security or to adopt any particular investment or portfolio strategy. Any views and opinions expressed do not take into account the particular investment objectives, needs, restrictions and circumstances of a specific investor and, thus, should not be used as the basis of any specific investment recommendation.

Please consult your financial and/or tax advisor for financial and/or tax information applicable to your specific situation.

Information is summarized for illustrative purposes only and is subject to change without notice. This material does not constitute an offer or solicitation and may not be treated as an offer or solicitation in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so.

In this material, references to “Vanguard” are provided for convenience only and may refer to, where applicable, only The Vanguard Group, Inc., and/or may include its affiliates, including Vanguard Investments Canada Inc.

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