10-Year Market Outlook

Because of the variability of stock market returns in the short run, I steer clients away from short-term tactical changes to their portfolio and prefer to rely on the weighty evidence of history, along with long-term thematic trends in the market. While no one has consistently and accurately predicted what the stock market is going to do, several well-respected firms provide long-term outlooks that have proven to be more accurate than short-term predictions.  

If we put an equal weighting on all of these firms, the averages come out as follows -

U.S Equities – 3.1% 

Developed Markets – 6.3% 

Emerging Markets – 6.8% 

U.S. Bonds – 1.3%  

Perhaps surprising to some is that international stocks are expected to outperform US stocks. This is largely due to their cheaper valuation vs. US stocks. While most investors prefer the perceived safety of US stocks, they pay a higher price for that preference. However, it can take a long time for cheaper stocks to gain favor. Many of these same firms predicted higher 10-year returns for international stocks in 2010, which clearly did not happen.

It’s also notable that all of these firms are predicting stock returns over the next 10 years to be lower than the long-term averages of 9-10%. However, again, their 10-year projections in 2010 were substantially lower than the returns we experienced over the past 10 years. The economy grew into higher valuations, and that could happen again. But, for planning purposes, I think it is prudent to adjust return expectations so that there is a margin of safety in case returns are in fact lower than their long-term averages.  

Thank you for reading, 

Alex 

This blog post is not advice. Please read disclaimers.

1 - Benz, Christine. “Experts Forecast Stock and Bond Returns: 2021 Edition.” Morningstar, Inc., 20 Jan. 2021, https://www.morningstar.com/articles/1018261/experts-forecast-stock-and-bond-returns-2021-edition.