• Vanguard
  • Vanguard Capital Markets Model® Forecasts
  • Vanguard 2026 Economic and Market Outlook
• Additional Market Outlook Reports
  • Blackrock
  • JP Morgan
  • Fidelity
  • Morningstar
• The Blind Forecaster by Morgan Housel

Every year, Wall Street releases its market predictions.

Targets get published, expectations get set, and headlines make it sound like the future is just a spreadsheet away.

But the market has a long history of humbling even the most confident predictions. And that creates a real problem for retirement savers—because while short-term forecasts are usually noise, ignoring market expectations altogether isn’t the answer either.

So in today’s episode, I’m breaking down how to think about market outlooks the right way. We’ll talk about why forecasts fail, when long-term assumptions actually matter, and how to use market research as a planning tool—not a prediction engine.

I’ll also walk through the key themes from Vanguard’s Economic and Market Outlook for 2026, including what they’re saying about growth, inflation, interest rates, where expected returns may be headed over the next decade, and why all of that matters for your portfolio and retirement income strategy.

Welcome to another episode of the Stay Wealthy Retirement Show. I’m your host, Taylor Schulte, and every week I cover the most important financial topics to help you “stay wealthy” in retirement. Ok, onto today’s episode.

How to Use 2026 Market Outlooks to Plan for Retirement

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, just like every year for the last 100 years, wall street predictions worked out to be worse than the proverbial blindfolded chimp throwing darts.

More specifically, most wall street banks predicted the S&P 500 would gain roughly 10%, expecting the index would end the year around 6,500. While they were directionally right, the market ended the year close to doubling those expectations, gaining nearly 18% with dividends reinvested and ending 2026 just shy of 6,900.

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.”

Highlighting Bob’s quote and preparing for this episode reminded me of one of my favorite investing articles from Morgan Housel that was written back in 2015, when he was still at The Motley Fool. The piece is called The Blind Forecaster, and Morgan shows that a literal blind forecaster—someone making random predictions—did a better job predicting the stock market than the top 22 Wall Street strategists during the time period measured.

The data he presents sets up the real question he’s trying to answer: Why do people listen to strategists at all? And why are they so consistently bad?

Morgan argues that the first part of that question is easy to explain. As he writes:

“I think there’s a burning desire to think of finance as a science like physics or engineering.”

In other words, he’s saying that we want to believe markets can be measured cleanly and precisely.

He goes on to explain:

“If you think finance is like physics, you assume there are smart people out there who can read the data, crunch the numbers, and tell us exactly where the S&P 500 will be on Dec. 31, just as a physicist can tell us exactly how bright the moon will be on the last day of the year. But finance isn’t like physics, writes Morgan. “Finance is much closer to something like sociology. It’s barely a science, and driven by irrational, uninformed, emotional, vengeful, gullible, and hormonal human brains.”

He concludes by saying:

“The most important thing to know to accurately forecast future stock prices is what mood investors will be in in the future. Will people be optimistic, and willing to pay a high price for stocks? Or will they be bummed out, panicked about some crisis, pissed off at politicians, and not willing to pay much for stocks? You have to know that. It’s the most important variable when predicating future stock returns. And it’s unknowable. There is no way to predict what mood I’ll be in 12 months from now, because no matter what you measure today, I can ignore it a year from now. That’s why strategists have such a bad record. Worse than a Blind Forecaster.”

Now, while I wholeheartedly agree with Morgan, none of that means we should throw our hands up and ignore market expectations altogether. What Morgan is criticizing is short-term prediction—trying to guess the performance over the next 12 months and relying on precise forecasts as if markets behave like a hard science.

That’s very different from using long-term market outlooks to build a range of reasonable planning assumptions. When used correctly, long-term frameworks aren’t about prediction—they’re about preparation. They give us a reference point to manage risk, set realistic expectations, and—maybe most importantly—reduce the temptation to make emotional, reactionary changes when markets inevitably don’t go our way.

In addition, your chosen framework and the assumptions drive important decisions about your portfolio. They influence how much risk you can—and should—take, how much you can sustainably withdraw each year, and when it makes sense to rebalance or reallocate your portfolio. They also help frame how we think about inflation, interest rates, and longevity risk, all of which become more consequential as you move closer to, or into, 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 about the future – 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 is 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 2026 Economic and Market Outlook

With that understanding and background for how I think about market outlooks, let’s dive into some of the key takeaways from Vanguard’s Economic and Market Outlook for 2026.

As many listeners know, Vanguard is well known for its rigorous approach to asset management and research, 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 the year ahead. 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 review them and consider extending the time horizon to help influence your assumptions.

So, the three core themes covered in Vanguard’s 2026 report are Artificial Intelligence, Economic Growth and Sticky Inflation, and the long-term outlook for global Stocks and Bonds.

1.) I’ll provide a brief overview of each, starting with the first big theme, Artificial Intelligence. So, in short, Vanguard isn’t dismissing AI as hype, quite the opposite. Their core argument is that AI is evolving into what economists call a general-purpose technology—something on the scale of electricity, railroads, or the internet. And like those past technologies, AI requires enormous upfront investment before the real productivity gains show up. And, as you’ve probably read or heard about, that investment is already happening. Spending on data centers, semiconductors, and energy infrastructure is accelerating, and Vanguard believes this could provide a meaningful lift to long-term U.S. economic growth.

But here’s the critical distinction: economic growth doesn’t automatically translate into stock market returns. The companies leading today’s AI buildout are committing to unprecedented levels of capital spending, and while that may support the broader economy, it also puts pressure on margins and free cash flow. As an example, Open AI, the company behind ChatGPT, is rumored to have lost nearly $27 billion dollars last year.

History shows that during major technology cycles, the companies laying the infrastructure aren’t always the ones that deliver the best long-term stock performance. So, at it’s core, Vanguard’s message is that AI can drive productivity and stronger economic growth over time, but the stock market—especially U.S. mega-cap tech—may already be pricing in an almost perfect outcome. And that growing gap between AI’s economic promise and market expectations is where risk starts to build, and it’s a theme that runs throughout the rest of their outlook.

2.) Vanguard’s second theme builds on the first: which is that, stronger growth and sticky inflation likely mean higher-for-longer interest rates. Their view is that if AI-driven investment actually boosts productivity and demand, there’s little reason for interest rates to return to the ultra-low levels of the last decade.

More specifically, they estimate the Federal Reserve’s “neutral” policy rate—the level that neither stimulates nor restricts the economy—they estimate the Federal Reserve’s “neutral” policy rate to sit at roughly 3.5%, which is meaningfully higher than pre-COVID norms and higher than what many investors still seem to be pricing in. They also expect inflation to remain above the Fed’s 2% target through 2026 due to wage pressure, tariffs, and sustained investment demand.

When you combine that with steady growth, their view is that the Fed simply doesn’t have much room to cut rates aggressively. So this isn’t a “bad economy, falling rates” environment. It’s closer to a “pretty good economy, limited policy flexibility” environment.

That distinction matters a lot for markets. When interest rates stay higher for longer, it makes life harder for parts of the stock market—especially companies that rely on cheap borrowing or promise healthy profits in the distant future. Higher rates simply make those future dollars they’re promising worth less today.

But there’s a flip side to all of this, that actually helps investors. For the first time in years, you can earn a real return—meaning your return after inflation is factored in—without taking a lot of risk. Money markets, Treasuries, and high-quality bonds are finally paying something meaningful again. That’s why firms like Vanguard keep saying bonds are “back.” Not because they’re predicting a recession or telling everyone to hide, but because higher neutral rates mean high-quality bonds can deliver income and diversification without needing interest rates to fall.

So Vanguard’s takeaway or summary here is that the baseline assumption of a quick return to near-zero rates is probably wrong. In Vanguard’s world, stronger growth and sticky inflation change the investment environment—and that directly influences the implications for portfolios and their outlook for stocks and bonds which is the third core theme in their report.

3.) In short, Vanguard’s Capital Markets Model is pointing to fairly moderate returns for U.S. stocks over the next decade. For U.S. stocks as a whole, they’re projecting an average annual return range of 3.4% to 5.4% over the next 10 years. While not very enticing, the outlook does improve as you move down the size and style spectrum. For example, Vanguard estimates 5.1% to 7.1% annual returns for U.S. small-cap stocks over the next decade, and an even higher range of 5.8% to 7.8% per year for U.S. value stocks.

Now, while Vanguard uses its proprietary capital markets model to generate these projections, much of the higher expected return for small-cap and value stocks comes down to current valuations. Put simply, small-cap and value stocks have lagged large-cap growth stocks for several years, and because of that underperformance, they’re trading at relatively lower valuations today. And historically, lower starting valuations tend to translate into higher expected returns going forward.

Like U.S. small cap and value stocks, Vanguard indicates the potential for higher future returns from international stocks, projecting a 10-year return range of 5.2% – 7.2%. And, as I already alluded to earlier, they’re also very optimistic about the bond market—particularly high-quality intermediate-term bonds. In Vanguard’s view, today’s bond return expectations offer a comfortable margin above expected inflation, which is something investors simply haven’t had in a long time.

Quick side note here, if you remember the bond-investing series I did a few years back, one key takeaway was that bond returns—especially from high-quality bonds—are far easier to estimate than stock market returns. That’s why Vanguard’s outlook shouldn’t be all that surprising. With the 10-year Treasury yield sitting just over 4% right now, Vanguard’s projected 10-year return range of 3.7% to 4.7% for U.S. Treasury bonds lines up pretty cleanly with where yields are today.

So, when you put all of this together, an investor looking to manage risk and improve long-term return potential might reasonably consider leaning a bit more toward high-quality U.S. bonds, small-cap and value stocks, and international equities—and a bit less toward U.S. large-cap growth.  Of course, the right allocation isn’t universal—it ultimately depends on your retirement goals, income needs, time horizon, and—just as importantly—your ability and willingness to take risk.

5 Things Retirement Savers Can Do to Prepare for 2026

Ok, to wrap up today’s discussion, I want to end by sharing 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. Number one, is to update your retirement plan assumptions. Most 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 even overspending in retirement. And if you want to explore other long-term market outlook reports beyond Vanguard—because they are just a sample size of one—I’ll share a few more in today’s show notes. 

2. Number two, whether you’re a fan of using capital market assumptions or not, I personally think 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, inevitable downturns emotionally and financially, so you don’t have to react in the moment. Maybe that plan is, “I won’t make any investment changes unless my plan or goals change. Or,  “I’ll tap my 3-year war chest of cash and bonds for near-term income while I wait for my stocks to recover and then rebalance when the storm passes.” Going through that exercise now and documenting your highly intentional gameplan 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. Number three, and 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 fund (like an S&P 500 ETF) or one market sector (like all U.S. growth stocks or technology), consider making the necessary changes to improve your portfolio diversification. 

4. Number four, for those in retirement taking consistent withdrawals, consider a Dynamic Withdrawal Strategy, like the Guardrails strategy I’ve discussed at length on the show. 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 is that a rules-based dynamic spending plan will help you maximize retirement income, especially in your early, active years, while mitigating the chances of outliving your money in your later years.

5. Lastly, number 5, remain focused on the long run. Vanguard’s capital market assumptions in their 2026 outlook report are exactly that – long term. Nothing we discussed today was about market expectations for 2026. Anything can happen in 2026, so don’t let short term headlines or predictions 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, 20, 30+ years. 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. 

Bottom Line

On that note, if today’s episode reinforced the importance of an evidence based, long-term investment strategy supporting your retirement plan, this is exactly the kind of work my team and I do every day. We help retirement savers build portfolios grounded in academic research, realistic return assumptions, and a plan they can stick with when markets get uncomfortable. And that investment strategy connects directly to everything else: how much risk you take, how much you can sustainably withdraw, and how taxes, cash flow, and healthcare fit together.

If you’re nearing retirement or already there and want a second pair of eyes on your portfolio and retirement plan, we’d be honored to have a conversation to see if there’s a good mutual fit. You can learn more and schedule a retirement strategy session through the link in the episode description or by visiting definefinancial.com and clicking “Get Started.”

Thank you for listening, and to view the research and resources referenced in today’s episode, just head over to youstaywealthy.com/266.

Disclaimer

This podcast is for informational and entertainment purposes only, and should not be relied upon as a basis for investment decisions. This podcast is not engaged in rendering legal, financial, or other professional services.