"It's never fun for a new investor to hear that prospective returns moving forward are bound to be modest. Whether it's due to extended valuations, higher risks, or something else, that's just not what someone wants to hear as they seek to put new money into the financial markets after what's been a strong multi-year bull run. It hurts to be sidelined after the S&P 500 has risen 50% in two years or 85% in the last five years."
"And while a 10% per-year return has pretty much been the expectation, past results, as I'm sure you've heard by now, are no guarantee of what to expect for the next decade. With Goldman Sachs and Vanguard, two respected names in the investment world, both setting a fairly low bar for returns over the next decade, I think investors must consider the scenarios that could play out for the decade ahead."
"Of course, it's quite sobering to hear that returns could average 6.5% (what Goldman expects) or even less (Vanguard sees the S&P gaining close to 3-5%) for the next 10 years, especially since the AI revolution holds so much promise for increased productivity and earnings growth potential. If Vanguard ends up right (I really hope they're not!), perhaps bonds will give equities a good run for their money from here."
Prospective equity returns may be lower than the historical 10% per year expectation because of elevated valuations and rising risks. Goldman Sachs forecasts S&P 500 returns averaging roughly 6.5% annually over the next decade, while Vanguard projects about 3–5%. These lower return scenarios raise concerns for retirees relying on the 4% withdrawal rule and make bonds comparatively more attractive if Vanguard's outlook materializes. High valuations driven by enthusiasm for AI create downside risk, and investors may consider avoiding overpaying for tech exposure or taking on more risk to pursue higher prospective returns.
Read at 24/7 Wall St.
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