I’m an un-abashed Vanguard fan when it comes to most things investment oriented. It is not a perfect company, but darn good and their intellectual honesty and process is top notch. So when Vanguard publishes a report titled “Vanguard’s economic and capital markets outlook” I read it.
This annual publication came out recently and here are some highlights:
- Their experts estimate the probability of a “double-dip” recession at approximately 10%.
- Vanguard expects global expansion over the next 10 years to occur at varying levels; for example, they see the economies of the emerging markets and Australia expanding the fastest, the U.S. growing more modestly and Europe, England and Japan showing sluggish growth. Caution: before you rush out to buy the sector funds that focus on emerging markets or Australia, this widely expected global growth prediction has already been priced into securities. Remember: markets are efficient, meaning most information is available to everyone else too.
- Vanguard expects inflation to trend at about 3% over the next ten years, somewhat higher than the current 1% to 2% we’ve experienced over the last few years. Average annual inflation of 3% is normal over the last 100 or so years in the U.S.
- The Vanguard gnomes expect long-term U.S. interest rates from bonds to be in the normal 4.5% to 5.5% (they’re about 3% today) with a normal yield curve.
- And here’s a juicy factoid, the Vanguard experts see the long-term median return for global equity markets to be near historical averages of 8% to 12%. And according to Vanguard, “the expected return differential between U.S. and non-U.S. equity portfolios is statistically insignificant.”
The Vanguard reports includes forecasts for individual asset classes as well.
Vanguard states (and I agree!) that “…investors should consider market forecasts only in a probabilistic framework.” Meaning they are forecasting return distributions not short-term “point forecasts.”
If you’d like a copy of the full report, please drop me an email and I’ll send you a PDF of the report. I don’t think Vanguard will mind since I’m not trying to sell the report.