• Vanguard’s 2025 Market & Economic Outlook
• Vanguard’s 10-Year Market Forecast
• Vanguard’s 30-Year Market Forecast
• Are Fed Rate Cuts Already Over?
• Additional 2025 Market Outlooks:
  • Blackrock
  • JP Morgan
  • Fidelity
  • Schwab
  • Morningstar

15 years ago, the U.S. stock market was still reeling from the aftermath of the subprime mortgage crisis.

In March of 2009, the market quietly hit its lowest point of the century. At that time, stocks were the last place investors wanted to put their money. But from 2010 through the end of last year, the market staged an incredible rally—one that few could have predicted.

Fast forward to today, and the narrative has flipped entirely. U.S. stocks, especially large-cap tech, are dominating the conversation. Hardly anyone is talking about international stocks, emerging markets, or even bonds. It’s all about U.S. stocks right now.

This is human nature… When markets soar, we tend to forget how risky it can be for a single asset class to dominate our portfolio. Hindsight dulls the pain of past downturns, making it easier to overlook potential risks, especially after prolonged market success.

And large-cap U.S. stocks have indeed been exceptional. Since the 2008 financial crisis, the S&P 500 has averaged a 14% annual return with only two losing years. But let’s not forget what came before this incredible run. From 2000 to 2009, the S&P 500 endured the “lost decade,” averaging a -1% annual return, even when accounting for dividends.

Meanwhile, other asset classes outperformed during this time period—REITs and emerging markets, now widely unloved by investors, delivered 10% annual returns. Small-cap stocks, international equities, bonds, and even savings accounts outperformed the S&P 500 during that period.

Markets tend to operate in cycles—yesterday’s winners often become tomorrow’s losers and vice versa. The most unloved asset classes can quietly become the best performers, while the most popular ones eventually disappoint. Yet, many investors fall into the trap of assuming recent trends will continue indefinitely. But markets don’t work that way. No asset class outperforms or underperforms forever.

The greatest investing lesson from the past 25 years—and throughout all of history—is this: market rallies often begin when things look bleak and tend to end when everything feels unstoppable. If you’re counting on another decade of U.S. large-cap stock dominance, history suggests the odds are not in your favor.

That doesn’t mean large-cap stocks should be ignored or eliminated from your portfolio. The power of diversification is recognizing that markets move in unpredictable cycles. Today’s leaders will eventually step aside, and another asset class will take the lead.

A well-structured, diversified portfolio is designed to weather these shifts. After such a remarkable run, a little caution and tempered expectations are not just wise—they’re essential, especially for those in or nearing retirement.

Welcome to the Stay Wealthy podcast. I’m your host, Taylor Schulte, and today I’m diving into something both important and sometimes misunderstood: long-term market outlooks.

Specifically, I’m sharing key takeaways from Vanguard’s recently published 2025 market and economic outlook report.

I’m also sharing 5 actions retirement savers can take in the new year to set themselves up for success for the next 10 years and beyond.

To grab a copy of Vanguard’s 26-page report and view additional research supporting today’s episode, just head over to youstaywealthy.com/235.

2025 Market Outlook: Planning for Uncertainty

The global markets can, and often do, surprise us. Even the so-called “experts” get the majority of their short-term predictions wrong. In fact, every major financial institution was wrong about 2024. And not just by a few percentage points either… the median forecast underestimated the S&P 500’s performance last year by 19%.

As my friend Bob Seawright likes to say, “One forecast that is almost certain to be correct is that market forecasts are almost certain to be wrong.” However, there’s a distinct difference between trying to predict short-term market movements—like next month’s returns or whether the market will go up or down this year—and building a range of plausible long-term assumptions.

However, there’s a distinct difference between trying to predict short-term market movements—like next month’s returns or whether the market will go up or down this year—and building a range of plausible long-term assumptions.

Having a framework or a reference point for long-term returns can help us better manage risk, set realistic expectations, and, perhaps most importantly, reduce the temptation to make drastic changes to our portfolio when markets don’t go our way. In addition, your chosen framework and the return assumptions you make drive important decisions about your portfolio… including how much risk you can (or should) take, how much you can withdraw each year in retirement, and when it might be smart to rebalance or reallocate your investments. They also help frame the conversation around inflation, interest rates, and longevity risk—all vital concerns for anyone heading into or already in retirement.

And this is why I find value in studying market outlook reports from reputable sources that share my long-term investing and retirement planning philosophies. Not because I think they’re going to provide precise, accurate predictions – because they most definitely won’t – but because they give us context, data, and frameworks for creating a successful long-term strategy.

As Christine Benz from Morningstar recently put it:

“You need to have some type of return expectation in mind when you’re creating a financial plan. If you can’t plug in a long-term return assumption, it’s tough to figure out how much to save and what sort of withdrawal rate to use once you retire. Using long-term historical returns are one option. But at certain points in time—like 2000—they might lead to overly rosy planning assumptions, which in turn might lead you to save too little or overspend in retirement.”

Vanguard’s 2025 Economic and Market Outlook

With that understanding, let’s dive into some of the key takeaways from Vanguard’s 2025 Economic and Market Outlook.

As many listeners know, Vanguard is well known for its rigorous approach to forecasting, leaning on academic principles, large historical data sets, and sophisticated models that look at thousands of potential economic scenarios.

Again, it’s not about predicting the exact returns for next year. Instead, Vanguard uses what’s often called a “range of outcomes” methodology, similar to a Monte Carlo simulation, to help investors see possible paths forward.

While some of Vanguard’s comments about the economy are focused on the current year, the asset class return forecasts in their annual economic report are for the next 10 years. And for what it’s worth, Vanguard does publish 30-year forecasts as well, and I’ll be sure to link to those in the show notes if you want to check them out and consider extending the time horizon to help make your assumptions.

The three core themes covered in Vanguard’s 2025 report are: Economic Growth, Interest Rates and Inflation, and Stocks and Bonds.

1. Economic Growth. In short, Vanguard expects global economic growth to continue, but at a more modest pace – a GDP growth rate closer to 2% than the present rate of around 3%. They point to persistent inflation pressures, tighter financial conditions, and some lingering supply chain issues as reasons for things potentially cooling down. They also state geopolitics, stricter immigration policies, and the implementation of trade tariffs as emerging risks to monitor.
2. Interest Rates and Inflation. Vanguard expects inflation to settle into a modestly higher range than what we were accustomed to prior to 2020, at least in the near to medium term. Specifically, they project an average 10-year range of 2-3%, which, while higher than pre-pandemic norms, is more in line with longer-term historical averages. Regarding interest rates, the most recent jobs report was published after the Vanguard 2025 outlook report was released. So this is me, and not Vanguard, sharing that last Friday’s monthly jobs report blew away forecasts (in a positive direction), suggesting to some that the Fed may be done cutting interest rates given the strength and health of the U.S. economy. In fact, Bank of America was quoted saying that the Fed should begin discussing raising interest rates if economic strength continues and inflation expectations move higher. Friend, monetary policy expert, and more objective thinker, Cullen Roche, recently wrote the following: “The U.S. appears to be experiencing a unique Artificial Intelligence boom that is helping bolster a lot of the economy. This is most obvious in U.S. capital markets where tech has held everything up. But outside of tech the markets have been pretty mediocre. Virtually everyone views the USA and especially U.S. tech as the only game in town. If that sentiment were to shift it would make for a very wild ride in the markets.”
3. Stocks and Bonds. Vanguard projects moderate average annual returns for U.S. stocks over the next 10 years. Specifically, they project an average 10-year return range of 2.5% – 4.5% per year for large-cap U.S. stocks and a higher range of 4.2% – 6.2% per year for both U.S. value and small-cap stocks. The higher range for value and small-cap stocks is largely due to their current valuations, which I went into great detail on in my small-cap value investing series last year. For international equities, Vanguard notes the potential for high returns, projecting a 10-year return range of 7.3% – 9.3% for international developed stocks. Regarding the bond market, Vanguard points out that bond yields have risen substantially from their historic lows, and while this shift has likely caused some short-term pain for diversified investors, it does translate to higher expected future returns for this asset class. That’s because the starting yield of a bond or bond fund is the best predictor of its future long-term returns. Specifically, Vanguard projects an average 10-year return range of 4.6% – 5.6% for AAA-rated intermediate-term treasury bonds.

Combining the outlook for these asset classes, an investor looking to use this information to position their portfolio for higher future expected returns over the next 10+ years would consider overweighting (or allocating more to) intermediate-term treasury bonds, small-cap stocks, value stocks, and international stocks, and underweighting (or allocating less to) U.S. growth stocks.

The exact allocation would, of course, depend on an investor’s retirement needs and goals, as well as their risk tolerance and risk capacity – risk capacity being the amount of risk someone NEEDS to take to reach their stated goals.

5 Things Retirement Savers Can Do To Take Action

To wrap up today’s discussion, I want to share 5 things retirement savers can do with all of this information – 5 things you can do to get prepared in the new year and put yourself in the best position for success over the next 10+ years:

1. Update Retirement Plan Assumptions. Many retirement planning tools use historical data to drive their future return assumptions. Depending on your philosophy and desired framework, consider pairing historical data with long-term return assumptions provided by a source you find reputable and trustworthy. As noted by Christine earlier, this can potentially help you avoid being overly optimistic (like many were right before the tech bubble in 2000) and save you from under-saving or overspending.
2. Stress Test. Whether you are a fan of using capital market assumptions or not, it’s always wise to plan for the worst and hope for the best. In other words, consider stress testing your retirement plan by modeling lower future long-term returns as well as a catastrophic crash. In addition, consider adding a section to your Investment Policy Statement documenting your plan for how to handle future downturns emotionally and financially. Maybe that plan is, “I won’t make any investment changes unless my plan or goals change.” Or, “I’ll tap my war chest of cash and bonds for near-term income while I wait for my stocks to recover.” Going through that exercise now and documenting your game plan while the markets are behaving can significantly help mitigate the chances of you making destructive, emotional changes in the thick of a market meltdown.
3. Review Asset Allocation. I know I’m stating the obvious here, but I wouldn’t be doing my job as your retirement podcast host if I didn’t tell you to review your asset allocation, and confirm that your mix of stocks, bonds, and cash are properly aligned with your retirement plan and goals. If your war chest is running low, you might add to your bond and cash allocations—especially if you’re within five years of retirement. If you’re overweight in one market sector (like all U.S. growth stocks or technology), consider improving your global diversification.
4. Dynamic Withdrawal Strategy. For those in retirement taking consistent withdrawals, consider a Dynamic Withdrawal Strategy. Rather than using a rigid “4% rule” or “$X per month,” adopt a rules-based withdrawal process that helps you adjust your spending when markets perform below (or above) your expectations and return assumptions. Yes, this might mean spending a bit less when markets go through rough patches. But the benefit, according to peer-reviewed academic research, is that a rules-based dynamic spending plan will help you maximize retirement income while mitigating the chances of outliving your money.
5. Long-Term Focus. Lastly, remain focused on the long run. Vanguard’s capital market assumptions in their 2025 outlook report are exactly that – long-term. Don’t let short-term headlines or predictions from talking heads in the media derail your long-term plan. Use the information and research you have access to, however you see fit, to help you shape a plan that you can stick with for the next 10 years and beyond. If constructed properly, a few bad years in the market shouldn’t sabotage a thoughtful, well-designed retirement plan that you (or your financial advisor) have designed for decades of life ahead.

On that note, if you’re looking to hire a retirement expert to help with your planning in 2025 and beyond, my team and I have just a few more open times on our calendar for discovery meetings between now and the end of February. To learn more, you can send me an email at podcast at youstaywealthy dot com, click the “work with me button” on the Stay Wealthy website, or click the link in the episode description in your podcast app. 

Once again, to grab Vangaurds 26-page market and economic outlook report and view additional research supporting today’s episode, just head over to youstaywealthy.com/235

Thank you, as always, for listening and I will see you back here next week.