Yet, even as investor balances are depressed, their portfolio prospects are likely better than they were a year ago, a fact that my latest roundup of capital markets assumptions illustrates vividly.
Thanks to higher fixed-income yields and lower equity valuations, almost all of the firms in our survey have increased their expectations for stock and bond returns for the next decade.
Every firm in our survey expects non-US stocks to outperform US stocks in the decade ahead.
Sane investors might pooh-pooh market-return forecasts of any kind, pointing to forecasters' poor track records of predicting the market's direction on a short-term basis. But long-term return projections can be useful and are arguably even mission-critical in a financial planning context. Without some expectation of what market returns might be, it's difficult to know how much to save, whether a retirement nest egg is adequate, or if an in-retirement spending rate is too high.
That's why I have been gathering firms' capital markets assumptions annually, and occasionally even more frequently than that when the market has experienced a downdraft.
As in the past, I've sampled return outlooks from a host of firms to identify commonalities and points of difference. Investment firms use different methodologies to arrive at their capital markets assumptions, but most employ some combination of current dividend yields, valuation, and earnings growth expectations to guide their equity forecasts.
Fixed-income return assumptions are more straightforward given the tight historical correlation between starting yields and returns over the next decade.
How to Use Them
Before you take these or any other return forecasts and run with them, it's important to bear in mind that these return estimates are more intermediate-term than they are long-term.
The firms I've included below all prepare capital markets forecasts for the next seven to 10 years, not the next 30. BlackRock does provide a 30-year forecast, and Fidelity's capital markets assumptions apply to a 20-year horizon, but they're outliers in terms of making such far-reaching forecasts available to the public.
As such, these forecasts will have the most relevance for investors whose time horizons are in that ballpark, or for new retirees who face sequence-of-return risk in the next decade.
It's also important to note that the parameters for these return estimates vary a bit; some of the return expectations are inflation-adjusted, while most are not. In addition, some of the experts forecast returns for the next decade, while others employ slightly shorter time horizons.
Finally, it's worth noting that several of the capital markets assumptions included here date from the end of the third quarter of 2022, when bond yields were peaking and stock and bond prices were exceptionally beaten down. Both asset classes have recovered a decent amount since that time, so it stands to reason that many of the forecasts discussed below may have declined accordingly.
