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Financial Fundamentals

Vanguard's Market Outlook: What to Expect in the Next 10 Years

β€” Alexandra Ardelean

Hey everyone, it's Marco from Incorpo.ro. Today, we're going to be discussing Vanguard's market outlook and annualized returns predictions for the next 10 years. Let's dive in.

Vanguard Capital Markets Model (VCMM)

The Vanguard Capital Markets Model (VCMM) is a financial simulation engine used by Vanguard for investment outlook. It factors in a global dynamic model, attribution models, and a simulation engine.

  • The global dynamic model forecasts long-term asset returns based on yield curves and equity market valuations.

  • Attribution models attribute asset returns to specific drivers.

  • The simulation engine models the probability distribution of outcomes.

Market Outlook Details

Vanguard's market outlook includes return projections and median volatility for different types of equities over the next 10 years.

  • U.S. equities are forecasted to return 3.7% to 5.7% over the next 10 years.

  • Global equities minus the U.S. are projected at 6.4% to 8.4% returns.

  • Growth stocks, which have been popular during the zero interest rate policy, are projected to return between 0.8% and 2.8%.

  • Global equities outside of the U.S., despite geopolitical turmoil, have the highest projection at 6.9% to 8.9%.

Fixed income assets, such as bonds, are projected to yield slightly more than equities on average.

  • Bonds are expected to return 3.5% to 4.5%.

Economic Tracking Model

Vanguard's proprietary economic tracking model suggested quarter GDP growth could be roughly twice the original expectation of 1.5%, which was accurate with the actual GDP release numbers of 4.9%. This is a significant increase from Q4's growth rate of -3%.

Core PCE (personal consumption expenditures) is expected to decelerate, increasing the likelihood of the Fed reaching its 2% inflation target by 2024.

Wage growth, long-term unemployment, and private company employment growth suggest a softening labor market.

  • Wage growth has been strong but is expected to slow down.

  • Long-term unemployment remains elevated but is improving.

  • Private company employment growth has been strong but is expected to moderate.

Vanguard expects one to three additional increases in the Fed's policy rate in the coming months and no rate cuts until mid-2024 at the earliest.

A recession is predicted within the next 18 months, with a probability now pegged at about 70%, down from over 90% previously.

U.S. Dollar Returns Projections

Vanguard's market outlook includes projections for U.S. dollar returns in different asset classes for 2023.

  • Equities are projected at 4.1% to 6.1%.

  • Aggregate bonds are projected at 3.8% to 4.8%.

  • Global bonds outside of the U.S. are projected at 3.7% to 4.7%.

Forecasting Model Changes Over Time

A forecasting model shows a gradual shift away from U.S. equities in Vanguard's ideal portfolio over time, with an increasing focus on bonds.

Projected Portfolio Statistics for May of 2023

The projected portfolio statistics include a:

  • 5.8% annualized return

  • 7.4% annualized volatility

  • 0.31 annualized Sharpe ratio


Incorpo.ro here again! I hope you enjoyed this article! If you want more content like this, consider joining Whiteboard Finance University Membership where we discuss all things finance and investing!

I'm curious - how do these projections affect your investment strategy? Let me know in the comments below!

As always, thank you for reading, and I'm excited about interest rates!