Vanguard’s 10-Year Equity Outlook

Vanguard’s 10-Year Equity Outlook

The exchange-traded fund giant sees international as a top bet. Will it be right?

Reviewed by: Allan Roth
Edited by: Allan Roth

Do you want to know stock market returns over the next decade?  

Wouldn’t it be nice to know if international will finally best the U.S., or if small cap and value will shine again as they did over the long run many years ago?  

Here’s Vanguard’s take with specific returns in its recently released report: Vanguard economic and market outlook for 2023: Beating back inflation.  

In its report, Vanguard states “our global equity outlook is improving because of lower valuations and higher interest rates.” It has upped its annualized returns 2.25 percentage points from a year ago. Undervalued equities are small cap, emerging markets and, to a lesser extent, international.  

Growth is still overvalued, though less than a year earlier. In short, the next decade belongs to international, while U.S. growth stocks still flash a danger sign. Take a look at the numbers:  


Vanguard 10-Year Outlook Annualized Returns

 Percentile Likelihood    
US Small Cap-2.60%2.50%6.10%9.70%15.10%22.90%
US Value-2.70%2.20%5.70%9.10%14.20%19.80%
US REITs-2.60%2.40%5.90%9.40%14.40%20.10%
Global Ex-US 2.20%5.80%8.40%11.00%14.90%18.80%
US Growth-3.40%1.00%4.10%7.10%11.60%18.60%
US Equity-1.30%2.80%5.70%8.60%12.90%17.40%
US Large Cap-1.50%2.70%5.60%8.50%12.80%17.10%

Source: Vanguard Economic and Market Outlook for 2023


Vanguard is forecasting that the Vanguard Total International Stock ETF (VXUS) will earn 8.4% annually, with a 90% probability the actual number comes in between 2.2% and 14.9% annually.  

On the other hand, the Vanguard Total Stock Market ETF (VTI) will earn only 5.7% annually, with the same 90% probability that the actual number comes in between a loss of 1.3% annually and a gain of 12.9%.  

So, international has a greater expected return, upside and downside than the U.S., at least at the 90% confidence level. Curiously, Vanguard is using different benchmarks than its funds, but these are very similar. 

These percentages translate to the approximate values below after a decade with a $10,000 investment. 




Reading this gives me an instinctual reaction to jettison U.S. stocks in favor of international. This is clearly not Vanguard’s intent, as its target date retirement funds hold equity positions of roughly 60% U.S. and 40% international. And instincts are typically wrong in investing.  

Roughly nine years ago, Vanguard predicted a 10-year annualized return of 8.5% for international and 7.7% for the U.S. In actuality, as of the end of 2022, the 10-year annualized return for VXUS was 3.95%, while VTI clocked in at a 12.07% return, according to Morningstar. Unlike the recent forecast, Vanguard showed a greater downside in that earlier forecast. 

Looking at the raw numbers, it may seem like Vanguard is saying there is at least a 95% chance international will best the U.S. over the next decade.  

But a Vanguard spokesperson responded, “summary percentile ranges for each asset category presented cannot be compared directly to calculate a joint probability.” They ran the numbers and stated the probability of international outperformance over the next decade was about 75%. 

To a lesser extent, the same pattern is true of U.S. growth with a fund like the Vanguard Growth ETF (VUG) having a lower expected return, with both more downside and less upside. Vanguard is showing the higher returns for small cap and value come at a cost of greater risk. 

When it comes to commodities, Vanguard is forecasting a fund like the Vanguard Commodity Strategy Fund Admiral Shares (VCMDX) to return 4.3% annually, with huge upside and downside. An investment of $10,000 is expected to grow to $15,235, but has a 5% chance of only being worth $2,484, as well as also having that same probability of being worth $81,875.  

This sounds a bit like playing the lottery. In actuality, there are no broad commodity funds—only funds that invest in commodity derivatives such as the futures market, where, in the aggregate and before costs, not a penny has ever been made.  

My Advice 

This Vanguard annual forecast is about the only forecast to which I assign any credibility. It avoids the foolishness of a one-year forecast and assigns probabilities rather than just giving one number.  

However, it still implies Vanguard is smarter than the market, though the firm says the purpose of the forecast was not intended to be part of the active/passive debate. Vanguard says it is merely trying to help investors understand its assessment of current valuations relative to our previous forecast, and within their historical context.  

The market is the collective wisdom of all market participants, which also includes investors believing in this forecast. And this is only one forecast—Morningstar predicts growth to outperform value, so it’s important that we know we don’t know.  

I believe in every single equity asset class listed in this forecast with the exception of commodities. It’s been hard to stay in international stocks, though lately international stocks have been on fire compared to the U.S.  

While I agree that the long-run return is somewhat likely to be higher than U.S. stocks, I don’t believe in this degree of certainty or that it has less downside risk. Thus, I own every asset class (except commodities) according to the market capitalization using the collective wisdom of market participants, rather than trying to outsmart them. 

None of these equity asset classes offer a free lunch of higher returns with less risk. Nevertheless, this forecast offers nuggets of wisdom to ponder long term and stay the course.  


Allan Roth is the founder of Wealth Logic LLC, an hourly based financial planning firm. He is required by law to note that his columns are not meant as specific investment advice. Roth also writes for Barrons, AARP, Advisor Perspectives and Financial Planning magazine. You can reach him at [email protected], or follow him on Twitter at Allan Roth (@Dull_Investing) · Twitter. 

Allan Roth is founder of Wealth Logic, an hourly based financial planning and investment advisory firm. He also benchmarks portfolio performance for foundations and other business concerns. Roth's website is You can reach him at [email protected] or follow him on Twitter at Allan Roth (@Dull_Investing) · Twitter