Vanguard warns U.S. stocks may return 3.3%–5.3% annually

Vanguard Group, one of the largest investment firms in the world with $11 trillion under management, has issued a sobering 10-year forecast for U.S. stocks that could rattle retirees relying on strong market returns.

The firm’s latest report, published in July, projects U.S. stock market returns to average just 3.3% to 5.3% per year over the next decade. That’s a sharp drop from the 15.26% annualized gain the S&P 500 delivered between 2015 and 2025, a period that included a brief COVID-era dip but mostly strong growth. Even worse, Vanguard warns that “growth stocks”—companies expected to expand faster than average—could return as little as 1.9% to 3.9% annually. Those numbers are uncomfortably close to the widely used 4% withdrawal rate many retirees depend on to cover living expenses without depleting their savings.

The forecast is already resonating with financial advisors and retirees. David Blanchett, head of retirement research at PGIM, called the outlook “a wake-up call” for anyone planning to rely heavily on U.S. equities in retirement. “If you’re five to ten years from retirement or already retired and your portfolio is overweight in U.S. stocks, this should prompt a serious conversation about diversification,” he said. The report suggests shifting some assets into less volatile options, like U.S. Treasury bonds, which Vanguard projects could deliver 3.8% to 4.8% annual returns with far less risk.

Vanguard isn’t all doom and gloom. Its forecast also points to stronger returns abroad, with developed-market equities outside the U.S. expected to deliver 5.7% to 7.7% annually by 2035. That trend is already visible in 2025, where Canada’s S&P/TSX Composite has outperformed the S&P 500 year-to-date. For retirees and pre-retirees, the message is clear: don’t bet the farm on U.S. stocks alone. Spreading investments across bonds, international stocks, and other assets could cushion the blow of lower domestic returns and help sustain nest eggs longer.