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Vanguard Warns of Worsening Odds for the Economy and Markets

Category: Economy,Finance

The forecast suggests opportunities, not just problems, Mr. Davis said. The 10-year outlook, for example, includes lower projected annualized returns, but still positive ones, for these two stock categories:

■ United States stocks, an expected 10-year return of 3.9 percent, annualized, down from a projection of an 8 percent annualized return, made in March 2013;

■ Stocks from markets outside the United States, 6.5 percent, annualized, down from 8.7 percent in 2013.

Non-United States stocks are more attractive for equity investors, on a relative basis, than they were five years ago. (That is partly a reflection of the out-performance of domestic stocks, making them far pricier than they were before.) What’s more, Vanguard projects improved 10-year annualized returns for these asset classes:

■ A diversified portfolio of United States bonds, 3.3 percent, annualized, up from 1.7 percent in March 2013;

■ Bonds from outside the United States, 2.9 percent, up from 1.8 percent;

■ Commodities, 5.9 percent, up from 4.2 percent;

■ United States Treasury bonds, 3 percent, up from 1.3 percent;

■ And cash, held in United States money market funds, savings accounts or other instruments, 2.9 percent, up from 1.5 percent. Short-term cash is becoming more attractive — with greater liquidity and, often, lower risk — compared with holding bonds.

Experienced investors who are “sophisticated enough to focus on these numbers and act on them themselves” can benefit by making their own adjustments, Mr. Davis said. Tried-and true investments like balanced funds and target date funds (which become more conservative as a given date nears) can make basic adjustments for you. Advisers can do this as well.

Tweaking investments can make it easier to live with them — and not panic — if markets fall, Mr. Kinniry said. At the moment, though, many Americans appear to be setting themselves up for trouble.

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