We don’t do this to prepare short-term forecasts, but to help form our long-term outlook, one that focuses on the 5- to 10-year time frame. We also emphasize a defined range of possibilities that we believe can help investors manage expectations wisely and establish realistic long-term goals.

What does Vanguard think the market has in store?

Following several years of outsized gains, Vanguard’s economic and market outlook is the most guarded since 2006. While we’re not bearish, we are cautious. In our recently published global economic and investment outlook, Global Chief Economist Joseph Davis and his team discuss key trends they see, some of which are highlighted below:

  • Periods of elevated volatility. Our outlook for global economic growth is “frustratingly fragile.” Growth is likely to be choppy as the global economy decelerates to a more sustainable pace. We’re likely to see periods of heightened volatility as markets work through the transition.
  • Lower returns. Over the next decade, returns for stocks and bonds are likely to be moderately below historical averages. Our economists believe the average annualized returns of a balanced portfolio consisting of 60% equities and 40% bonds for the decade ending 2025 are most likely to be in the 3%–5% range after inflation. This is below the average after-inflation return of 5.5% for the same portfolio from 1926 through 2015.
  • Stocks. After several years of outsized stock market gains, stocks are more expensive relative to historical levels. The price-to-earnings ratio of the S&P 500, for example, ended the year above 18, compared with an average since 1926 of a little over 15. Our medium-run outlook for global equities remains guarded. We believe investors should expect stock returns to be within the 6%–8% range over the next ten years.
  • Bonds. The return outlook for fixed income remains positive, yet muted. We estimate that the 10-year U.S. Treasury yield will be at about 2.5%, even with monetary policy tightening.

What does Vanguard’s outlook mean for you?

With the subdued return outlook, it may be tempting to alter your portfolio allocation. Despite our cautious stance, we believe it’s essential to remember that investing is not alchemy and the fundamentals of portfolio construction remain unchanged. That is, you can’t create extra return without increasing risk. Nor can you avoid risk without accepting long-term detrimental consequences to your wealth, such as erosion of purchasing power due to inflation.

For such reasons, we think it’s more important than ever to focus on what you can control—such as starting to save as early as possible and saving more.

So what can you do?

  1. Maintain a long-term perspective. One of the most important, yet often overlooked, aspects of investing is maintaining a long-term perspective. It starts with a plan, one that’s appropriate for your circumstances and investment objectives and is something that you can stick with through the peaks and troughs of market cycles. Over the long run, these periods of volatility smooth out and reward patience and discipline with generally higher returns.

  2. Save more and spend less. During periods of volatility, minimizing expenses can help, but more crucial is minimizing the risk of withdrawing more from your portfolio during bad years in the stock market. Redeeming investments during market downturns removes them at depressed levels before they have a chance to recover. The simple strategy of contributing more money toward an investment goal can be a surprisingly powerful tool.

    Why not simply minimize the possibility of loss and finance all goals using low-risk investments? Because attempting to escape the market volatility of stock investments by investing in more stable, but lower-returning, assets such as Treasury bills can expose a portfolio to other, longer-term risks, such as the erosion of purchasing power. Or it may require a level of saving that is unrealistic. For investors with longer time horizons, inflation risks may actually outweigh market risks, often necessitating a sizable allocation to investments such as stocks.

  3. Maintain discipline and rebalance. Expect greater volatility and be prepared to take full advantage of dollar-cost averaging. During market downturns, you can make the market’s natural volatility work in your favor by rebalancing whenever your stock and bond mix strays more than 5% from your target.

    History shows that the worst market declines have led to some of the best opportunities for buying stocks. Investors who didn’t rebalance by increasing their stock holdings at these difficult times not only may have missed out when stock values recovered but also may have hampered their progress toward long-term investment success—the goals for which they originally devised their financial plan.

    As Vanguard and other investment firms offer their perspective on what the future may hold, we think it’s helpful to remember that uncertainty is an inherent part of investing. We strive to treat the future with the deference it deserves, and to remain comfortable with unpredictability. It’s a key reason Vanguard’s investment philosophy has always been grounded in the principles of balance, diversification, discipline, and taking the long view.


Please remember that all investments involve some risk. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.

Dollar-cost averaging does not guarantee that your investments will make a profit, nor does it protect you against losses when stock or bond prices are falling. You should consider whether you would be willing to continue investing during a long downturn in the market, because dollar-cost averaging involves making continuous investments regardless of fluctuating price levels.