Podcast Summary: Ask The Compound – “What Is the Expected Return for the Stock Market?”
Date: June 18, 2025
Hosts: Ben Carlson & Duncan Hill
Guest: Callie Cox, Strategist
Overview
In this episode, Ben Carlson and Duncan Hill, joined by strategist Callie Cox, tackle listener questions centered on the future of stock market returns, risk tolerance, hedging against a falling U.S. dollar, and how much is too much to save. The hosts offer insights into Ben's daily routine, the intricacies of estimating future stock returns using John Bogle's famous formula, the psychology behind market pessimism, and portfolio construction for young investors. The episode mixes analytical rigor with humor, creating an engaging environment for both casual listeners and serious investors.
Key Discussion Points & Insights
1. A Day in Ben Carlson’s Life
[04:07–08:49]
- Time Management: Ben explains that content creation (podcasts, blogs) is integral to his job, not a side activity.
- “Part of it is that producing content is part of my day job. Right. It's part of what we do here. I never really expected that...but it's how we communicate with clients...” – Ben [04:22]
- Team Support: The firm’s operational excellence frees up client-facing advisors for content production.
- “We have dozens of client facing advisors...operations team...traders...tax and estate planning specialists...All of our colleagues do their jobs so well that it allows us to keep producing content.” – Ben [05:51]
- Work-Life Balance: Ben values family time, works remotely, and adapts his schedule flexibly.
- “I’m not going to miss out on stuff because my kids are still young...I have gotten way faster at writing, but all the research that goes into that takes time.” – Ben [05:51]
- Admits it’s never perfectly balanced: “Sometimes I feel like I’m working too much. Sometimes I should be relaxing more. I love creating content because it introduces creativity and learning.” – Ben [07:56]
2. John Bogle's Expected Return Formula & Stock Market Projections
[09:00–13:18]
- Bogle’s Formula: Long-term market returns depend on three elements:
- Dividend Yield
- Earnings Growth
- “Speculative Return” (valuation changes)
- Retrospectives and Reality Checks: Ben references Bogle’s 2011 book, showing Bogle anticipated 7% returns, while the actual return post-2011 was over 16% annually, largely due to stronger-than-expected earnings growth and higher valuations.
- “Jack Bogle is a saint in this house...but not always right about everything. The actual return for the next 10 years after the publication of this book was over 16% per year.” – Ben [10:50]
- Predicting the Future: Today’s dividend yield is about 1.6–1.7%, and if earnings growth remains above average (8–9%), returns could be similar, but the big unknown is investor sentiment and valuations.
- “The hard part is valuations you cannot forecast because valuations are essentially, how do investors feel about the stock market?” – Ben [11:59]
- Quote: “No one predicted that we would have high double-digit returns like that. No one.” – Ben [13:00]
3. How to Talk to "Doomer" Friends About the Market
[13:27–21:40]
- Guest Appearance: Callie Cox joins to discuss risk tolerance, shaped by personal history (financial crisis trauma, upbringing) more than current economic stats.
- “Your risk tolerance is set even before you know of Japan’s lost decade...I have a lot of early memories of money that probably didn’t set up my risk tolerance in the right way.” – Callie [15:14]
- Millennial Risk Aversion: Millennials hold more cash—direct fallout from formative years during the Great Recession.
- “Millennials’ cash holdings were actually significantly higher than Gen X’s cash allocations...the Great Recession instilled some kind of risk averseness in us.” – Callie [16:31]
- Advice: Focus on personal goals, not just macro risks. Use backward planning—know your “why,” set goals, and let those guide your strategy.
- “Establish your goals, establish your why, you can back into the numbers, and then it becomes a little less heady and a little more logistical.” – Callie [19:01]
- Macro vs. Personal: Don’t overly fixate on macro calamities—ownership of U.S. equities is still driven by innovation and profit margins, not imminent doom.
- “America has the most innovative companies with the fattest profit margins. That's an undisputable fact. And I don't think that walks back anytime soon.” – Callie [19:28]
4. The U.S. Dollar as Reserve Currency: Should We Hedge?
[21:43–29:09]
- Is the threat real? The dollar’s dominance is still overwhelming: “88% of currency trades still happen in the dollar.” – Callie [22:59]
- Recent Weakness: Dollar down 11% over five months, but this is cyclical and doesn’t immediately undermine reserve status.
- “Maybe this is just positioning and too many people were in the dollar...the other side of the cycle.” – Ben [22:37]
- Implications for Investors: When the dollar falls, international stocks tend to outperform U.S. stocks.
- “When the US Dollar was down in a month, the rest of the world outperformed the US market 62% of the time… own both here and there. So the best way to hedge...is to own both." – Callie [25:06]
- International Diversification: U.S. companies already generate 40% of revenue overseas; owning foreign stocks adds direct currency diversification.
- “Even if you’re not explicitly invested in international stocks, you are invested internationally in a way...” – Callie [26:45]
- Political Angle: Hosts agree that support for a strong or weak dollar isn’t as partisan as media suggests—policymakers’ preferences change with circumstances.
5. Can You Save Too Much?—Enjoying the Present vs. the Future
[29:12–33:47]
- Yes, It's Possible: Over-saving can be a real problem, leading to missed opportunities for meaningful experiences and enjoyment now.
- Shares a comic: “Explain to me why enjoying life when I retire is more important than enjoying life now.” – Ben [29:21]
- Intentionality: Get clear about goals and spend in line with your values—budget not just for retirement, but for meaningful spending in the present.
- “Give yourself like guilt free spending areas...define those ahead of time rather than trying to figure out after the fact.” – Ben [31:19]
- Financial Planning Tools: The firm's advisors use Income Lab to help clients model ideal spending now and in the future.
- “It builds a financial plan around your ideal level of spending, which I think is just such a cool way to frame it.” – Callie [32:40]
- Balance Is Key: It's not binary—don't frame saving vs. spending as “worry in old age or have fun now,” but rather seek balance.
6. How Much Should You Allocate to a Single Stock?
[33:51–38:58]
- Personalization is Key: No perfect answer—depends on risk tolerance and the stage of life.
- “If you concentrate too much in a stock and the stock goes up, you'll wish you put more...if it goes down, you’ll wish you had less.” – Ben [35:12]
- Suggested Guidelines: Ben suggests 10–20% of the portfolio as a ceiling for an individual stock, especially for younger investors.
- “10 to 20% is probably my personal threshold for portfolio [allocation].” – Ben [35:25]
- Dollar Amount Perspective: Callie recommends thinking in absolute dollars, not just percentages—“If you put $50k in a single stock, that's essentially $50k you could lose.” [36:08]
- Learning Through Experience: The early investment phase is the best time to test and discover your personal risk tolerance, when stakes are lower.
- “This is the time to learn your threshold...when you are young.” – Ben [37:56]
Notable Quotes & Memorable Moments
- “Jack Bogle is a saint in this house, right? He’s done more to help anyone on the planet...than anyone in history. You can’t touch him. But [he’s] not always right about everything.” – Ben [10:50]
- “America has the most innovative companies with the fattest profit margins. That's an undisputable fact.” – Callie [19:28]
- “You concentrate to get rich, diversify to stay rich.” – Ben [37:11]
- On Millennial risk aversion: “The Great Recession instilled some kind of risk averseness in us. And that’s not easy to give away.” – Callie [16:31]
- “Explain to me why enjoying life when I retire is more important than enjoying life now.” – Comic shared by Ben [29:21]
- “If you put 50k in a single stock, that's like essentially 50k you could lose...with single stocks or companies, that's especially true because you don't have hedgers and diversifiers there.” – Callie [36:08]
Noteworthy Timestamps
- [04:07] Ben on work-life balance and content creation
- [09:00] Introduction to Bogle’s expected return formula
- [10:50] Ben critiques Bogle’s predictions and discusses market surprises
- [13:27] Talking to pessimistic ("doomer") friends about markets
- [15:14] Callie on the psychological roots of risk tolerance
- [22:02] Hedging against a falling U.S. dollar and implications for portfolios
- [25:06] Data on performance: U.S. vs international stocks when the dollar falls
- [29:21] Discussion: Can you save too much?
- [33:51] How much is too much in one stock? Portfolio construction
Conclusion
This episode deftly blends practical investing advice, psychological insight, and entertaining banter. Key takeaways include the unpredictability of market returns (even for legends like Bogle), the powerful but often subconscious drivers of risk tolerance, and the importance of intentionality both in saving/investing and in living life. Portfolio construction, diversification, and global exposure are discussed with real-world candor, reminding listeners that personal context and psychology matter as much as numbers and models.