Vanguard reveals what could be coming for US stocks. Here’s why it’s raising alarm bells for retirees

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Vanguard pioneered the concept of index fund investing, and currently has a whopping $11 trillion in assets under management. It’s a real heavyweight in the American stock market (1).

So when the company issues a report about the future of the stock market — it’s worth a closer look. In July, the company published a 10-year forecast for a wide range of asset classes, ranging from municipal bonds to mortgage-backed securities (2).

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But it’s the forecast about stocks that should raise alarm bells for many U.S. retirees. Here’s a closer look at what the report suggests seniors can expect in the years ahead.

According to Vanguard, the U.S. stock market is expected to deliver an annualized return of between 3.3% to 5.3% over the next 10 years. That is considerably lower than the previous 10 years. Since 2015, the S&P 500 has delivered an annualized return of 15.26% (3).

In other words, Vanguard’s analysts believe future performance won’t be nearly as impressive as investors have experienced in recent years, barring a sharp drop during COVID.

The team’s forecast about so-called “growth stocks” is even worse. Vanguard expects an annualized return between 1.9% and 3.9% over the next 10 years. That’s uncomfortably close to the 4% withdrawal rate many retirees depend on to meet living expenses.

If you’re already retired or approaching retirement and your portfolio is overweight U.S. stocks, these forecasts should cause some concern. Fortunately, the report also highlights other asset classes that could perform better in the years ahead.

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Not all asset classes are facing a bleak decade. In fact, some could outperform. Vanguard’s forecast suggests that U.S. Treasury bonds could deliver annualized returns ranging from 3.8% to 4.8% over the next 10 years. That’s a better return rate than you could get with growth stocks, but with far less volatility and risk.