Economics and markets

Why market forecasts matter to long-term investors

September 14, 2021

Joseph H. Davis's headshot

Vanguard Global Chief Economist

Vanguard Insights

Like this? Get insights from Joseph Davis delivered to your inbox.

Treat history with the respect it deserves

1 Bogle, John C., 2015. Bogle on Mutual Funds: New Perspectives for the Intelligent Investor. Hoboken, N.J.: John Wiley & Sons, Inc.

The value of market forecasts rests on reasonable expectations
Some errors in our forecasts and the lessons they offer
Three line charts show the forecast and realized 10-year annualized returns for, respectively, a 60% stock/40% bond portfolio, U.S. equities, and ex-U.S. equities (all U.S.-dollar denominated). They show that a 60/40 portfolio returned an annualized 7.0% over the 10 years ended September 30, 2020, and that Vanguard’s return  forecasts at the 25th, 50th, and 75th percentiles of Vanguard Capital Markets Model distributions are 2.4%, 3.8%, and 5.2%, respectively. U.S. equities returned an annualized 13.4% over the 10 years ended September 30, 2020. Vanguard’s return forecasts at the 25th, 50th, and 75th percentiles of Vanguard Capital Markets Model distributions are 0.6%, 3.2%, and 5.8%, respectively. Ex-U.S. equities returned an annualized 4.0% over the 10 years ended September 30, 2020. Vanguard’s return forecasts at the 25th, 50th, and 75th percentiles of Vanguard Capital Markets Model distributions are 3.5%, 6.1%, and 8.7%, respectively.
Why today’s valuation expansion limits future U.S. equity returns
What to expect in the decade ahead

2 Jenks, Philip, and Stephen Eckett, 2002. The Global-Investor Book of Investing Rules: Invaluable Advice from 150 Master Investors. Upper Saddle River, N.J.: Prentice Hall PTR.

Contributors

Ian Kresnak's headshot
Vanguard Insights

Subscribe to Economics & markets.

Get timely analysis on the market, delivered straight to your inbox, as soon as we publish them.

Also subscribe to article author Joseph Davis

Read our privacy policy to learn about how we keep personal information private.

Vanguard Insights

Thank you for subscribing to Economics & markets.

You'll be notified when new content is published, but will only ever receive one email a day from Vanguard Insights.

Vanguard logo

Vanguard is the trusted name in investing. Since our founding in 1975, we've put investors first.