Global economic recovery will be slow and bumpy over the coming years, a senior economist from Vanguard told financial services professionals in Hamilton yesterday.Speaking at the Vanguard 2012 Bermuda Investment Forum at the Fairmont Hamilton Princess, Roger Aligia-Diaz highlighted several headwinds facing the economy including the European sovereign debt crisis, high oil prices, a slowdown in China and the “fiscal cliff” facing the US at the end of this year.Although Mr Aligia-Diaz warned his audience that his message might appear depressing, the presentation was cautiously optimistic, indicating that growth was happening and was likely to continue.Vanguard, which manages more than $2 trillion of assets in its mutual funds, sees the most likely scenario for stocks over the next ten years as an annualised return of between six and 12 percent, the same applying to the US and emerging markets.It sees prices remaining stable with annual inflation most likely to be in the two percent to three percent range over the next decade. This will likely be accompanied by a very low-yield bonds environment and Vanguard sees the most likely return average US bond yield as being between 1.5 percent and 2.5 percent.In a question-and-answer session, Mr Aligia-Diaz described the seriousness of the situation facing the US at the end of this year, known as the “fiscal cliff” or ‘taxmageddon”, which he described as a political risk, rather than an economic one.“This refers to tax increases and spending cuts that will take place automatically at December 31, unless the US Congress acts before then,” Mr Aligia-Diaz said. “This would probably have to happen after the elections in November.“If nothing is done, then it will effectively mean $600 billion of austerity put into the fiscal budget. That would certainly put the US into negative territory for GDP growth in the first quarter of next year.“Most people think that the Congress will be able to extend the payroll tax breaks and the Bush tax cuts, and make fewer spending cuts. They will also have to work out a new debt ceiling deal at the same time.”Jack Brennan, chairman emeritus and senior adviser of Vanguard, then spoke of some of the lessons he had learned in his 30 years in the investment industry.He remembered the widespread pessimism when he had first started in 1982 at the tail end of what was then the deepest recession since the Great Depression. yet it turned out to be the start of an 18-year bull market.His experience had taught him that it was very difficult to answer the regular investor’s question: “Is this a good time to invest?”What he had learned was that there were three basic building blocks necessary for successful investing. First, an appreciation that costs matter, that even a small difference in fund fees can make a huge difference to wealth accumulation in the long term.Secondly, the value of diversification. “The thing about diversification is that it’s guaranteed to disappoint, because some assets will not perform,” Mr Brennan said. But there was solid evidence that over time, diversification paid off. This was easier to achieve in these days of exchange-traded funds (ETFs) that followed multiple indices, he added.Thirdly, he said it was important to be able to define the intended duration of the investment. Defining “long term” was very challenging and could make a significant difference to returns. For example over the past ten years stocks have returned about 5.5 percent compounded, he said. But over the past 30 years, there was an 11 percent return.Other key elements included avoiding bad ideas and investment fads, remembering that ‘conservatism wins’, understanding risk, paying attention only to your own personal benchmark and trust of the people you invest with.Mr Brennan also had some encouraging words for Bermuda, when he touched on the importance of regulation.“You have a great business environment in Bermuda, because you’ve got the regulation right,” he said. “Bermuda could be a role model for getting regulation right. If you don’t get regulation right, then people lose confidence in the market and they don’t invest, and growth slows because markets drive growth.”