Vanguard, the firm that pioneered index fund investing and currently manages approximately $11 trillion in assets, published a 10-year forecast in July covering a broad range of asset classes — from municipal bonds to mortgage-backed securities. The projections for U.S. equities, however, stand out as particularly notable for investors approaching or already in retirement.

Subdued Outlook for U.S. Equities

According to Vanguard's forecast, the U.S. stock market is expected to deliver annualized returns of 3.3% to 5.3% over the next 10 years. That marks a significant decline from the past decade's performance: since 2015, the S&P 500 has produced an annualized return of 15.26%, even accounting for a sharp downturn during the COVID-19 pandemic. Vanguard's forecasting model incorporates current market valuations as a key input, and equity valuations have climbed steadily during the long bull run, mechanically reducing the return potential over the next decade.

The outlook for so-called "growth stocks" is even more muted. Vanguard projects annualized returns of just 1.9% to 3.9% for this category over the next decade — a range that sits uncomfortably close to the 4% withdrawal rate many retirees rely on to cover living expenses. For retirees or near-retirees whose portfolios are heavily weighted toward U.S. equities, these projections warrant particular attention because of sequence-of-returns risk — the well-documented danger that weak returns in the early years of retirement can permanently impair a portfolio's longevity, even if markets recover later.

Bonds and International Equities May Offer Better Prospects

Not all asset classes face a difficult decade ahead. Vanguard's forecast indicates that U.S. Treasury bonds could generate annualized returns of 3.8% to 4.8% over the next 10 years — potentially outpacing growth stocks with considerably less volatility and risk. That narrowing gap between expected bond and equity returns is itself notable, since equities have historically delivered a substantial premium over fixed income as compensation for higher risk.

The firm also anticipates that developed-market equities outside the United States will outperform domestic stocks, projecting annualized returns of 5.7% to 7.7% by 2035. International markets broadly carry lower starting valuations than U.S. equities, which contributes to the more favorable outlook.

Early signs of this divergence are already visible. Canada's benchmark S&P/TSX Composite Index has returned 23.9% year-to-date through mid-October, compared with the S&P 500's 13.8% over the same period. Separately, UBS Group expects approximately $1.4 trillion in capital to rotate from U.S. to European equities over the next five years.

Diversification and Home Bias

Any long-term market forecast — even one from a trillion-dollar asset manager — carries inherent uncertainty, and it remains impossible to predict whether U.S. stocks will overshoot or undershoot Vanguard's projections. Nonetheless, the report underscores the potential value of diversification.

According to AllianceBernstein's analysis of Morningstar data, U.S. investors allocate just 15% of their portfolios to international stocks, exposing them to what analysts describe as "home bias." A decade of dominant U.S. equity performance has reinforced that tendency, leaving many portfolios concentrated precisely as a major forecast signals potential underperformance. Investors with heavily domestic portfolios may want to consider increasing exposure to international stocks and bonds.

Alternative assets such as gold may also play a role. Gold is widely regarded as a hedge against stock market volatility and has been on a historic bull run in 2025, trading above $4,000 per ounce.

Considerations for Retirees

Financial advisors frequently recommend adopting a more conservative allocation as investors age and approach retirement. For those already retired and concerned about equity-market exposure, adding stable fixed-income instruments — such as U.S. government bonds — may be worth considering. Consulting a financial advisor about individual retirement goals and circumstances remains a prudent step.

Vanguard itself offers hybrid advisory services that combine guidance from professional advisors with automated portfolio management, allowing clients to receive tailored plans based on their financial objectives.

A well-diversified portfolio can help stabilize retirement outcomes regardless of how individual asset classes perform in the years ahead.

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Sources: Vanguard (1, 2, 3); Yahoo Finance (4); AllianceBernstein (5)

Source: Yahoo Finance / Moneywise