Vanguard recently released their most recent annual 10-year forecast as of mid-November 2024 (effectively the beginning of 2025). The beginning of the year is the time for forecasts, and that also makes it a good time to remind ourselves how badly they can be wrong and how you shouldn’t really use them for anything.
Let’s look back at how those same forecasts performed from 2011-2021, with confidence ranges within the 25th and 75th percentiles. I have some old images saved from when Vanguard gave us an update in 2021.
For US Stocks between 2011-2021, their forecast in 2011 was roughly between 6% and 12% annually for US stocks, for a median around 9%. That a wide band! The actual return? 13.4%. As of early 2025, we are still outside their confidence bands.
For Global ex-US Stocks between 2011-2021, their forecast in 2011 was roughly between 6% and 11% annually for US stocks, for a median around 8.5%. The actual return? 4.0%. As of early 2025, we are still outside their confidence bands here as well.
I’m not trying to pick on Vanguard here, but they do release these things with a certain degree of seriousness and brand authority. But honestly, I wish they wouldn’t. I mean, sooner or later they’ll be correct, but how could you possibly attribute that to skill and not luck?
I’m going to include a copy of their late 2024 10-year forecasts (close to the start of 2025) here because they usually delete the post after a couple of years. This way, we can look back again in the future. For this chart, the ranges are their median forecast with a fixed 2% range of confidence for stocks and 1% range for bonds.
Notably, the 10-year median return forecast is 3.8% for US stocks, 7.9% for Global ex-US stocks, and 4.8% for US total bond. This table includes their percentile confidence ranges.
This all reminds of me of the old joke: How can you tell economists have a sense of humor? They use decimal points.
The Best Credit Card Bonus Offers – 2025
Big List of Free Stocks from Brokerage Apps
Best Interest Rates on Cash - 2025
Free Credit Scores x 3 + Free Credit Monitoring
Best No Fee 0% APR Balance Transfer Offers
Little-Known Cellular Data Plans That Can Save Big Money
How To Haggle Your Cable or Direct TV Bill
Big List of Free Consumer Data Reports (Credit, Rent, Work)
While they were totally wrong, and the market can stay irrational longer than we can stay solvent etc., eventually there has to be a correction right? US large caps are extremely overvalued. They provide almost no profit compared to the outrageous share prices. For example, Amazon’s P/E is about 50. While it could go up from here, this would be purely speculation or monetary expansion that has no relationship to actual profits. Isn’t it better to buy where the price is low compared to the expected earnings (even though that hasn’t worked since pre-GFC days)?
My expectation is we are looking at the 1970s. Inflation will be 4% and stocks will grow by 4%. Eventually multiples will come down but we have a long way to go.
It’s a reminder to stay the course with my US/International mix that I’ve been using for the last 15-20 years. Yes, I would have done much better if I mostly invested in the S&P 500 in the past decade…but the next decade could be very different.
I feel like a lot (the majority) of younger investors are really overweight in US stocks. I don’t blame them with their “why bother with international stocks or bonds” attitude but I’ll stay the course!