Vanguard 10-Year Expected Asset Class Returns (2018)

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I was surprised to read the NY Times article Vanguard Warns of Worsening Odds for the Economy and Markets. Everything is written very carefully using odds so that there is no “prediction” that could be called “wrong” later on, but at the same time if there is a future recession, they will appear to have been “right”. I didn’t know that Vanguard did these sort of economic predictions or that they were deemed so noteworthy.

As the chart below reminds us, all bull markets must eventually come to an end:


The question is, what is the point? What is actionable about this? You could view this article as encouraging market timing (sell stocks now!), or it could be a prudent reminder to rebalance and assess your risk exposure (sell a little stock now? maybe?). The latter is always a good idea, so let’s be generous and call it that. I wonder what Jack Bogle thinks. I mean, the title of his upcoming book about the history of Vanguard is Stay the Course.

For posterity, I wanted to record their expected 10-year (annualized) returns for the following asset classes (as of mid-2018):

  • US Stocks 3.9%
  • International Stocks 6.5%
  • US Total Bond (Corporate + Government) 3.3%
  • International Bonds 2.9%
  • Commodities 5.9%
  • US Treasury Bonds 3%
  • Cash 2.9%

These are nominal numbers. In another economic outlook article, Vanguard projects inflation to run slightly under 2% annualized.

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  1. That’s interesting indeed. I’m surprised Vanguard would even comment on market conditions, even less trying to forecast/predict the future.

  2. Has there been follow-ups or studies showing just how far off these predicted returns have been in the past?

    I would think this would be the case. And the biggest problem I’ve seen is that the markets often have very quick up or down moves that can change everything quickly.

  3. Here are their 10-year numbers from March 2013 per the article. Not sure if they have anything earlier.

    US Stocks 8%
    International Stocks 8.7%
    US Total Bond (Corporate + Government) 1.7%
    International Bonds 1.8%
    Commodities 4.2%
    US Treasury Bonds 1.3%
    Cash 1.5%

  4. market timing is difficult to do, but when the valuations are as stretched as they are today, i prefer to get to risk parity until a SHTF momenth, that undoubtedly always arrives. Doesn’t necessarily mean you have to take a lot of capital gains as you can generally just short the same number of shares you are long in a separate account to change the allocation until the market starts to slide.

    it’s a lot of work, but worked out well for me in 2007 when I took an anecdotal look at the real estate market and realized it’s ridiculous, and in 2000 when i was working in a startup that raised $35M to do something that 1 person in a mall was already doing better. the signs are out there. this time around, it’s execs issuing corporate debt to buyback stock. when the slowdown comes that debt will be there, but the execs will be long gone with their performance based comp package. It’s too easy to abuse that as an executive, and that’s exactly what they are doing. the hangover will arrive, and vanguard’s prediction will probably ring true; however you can augment that by slowly taking money off the table as valuations start getting to historic highs.

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