Where to invest for the next decade, according to Vanguard

18 February 2025

The US asset manager’s Capital Markets Model has worsened from a year ago.

By Jonathan Jones

Editor, Trustnet

  

US equities will make a paltry return in comparison to the rest of the world, according to Vanguard’s 10-year annualised return outlook. It is based on the firm’s Capital Markets Model, which looks at the factors that drive long-term returns (such as yield curves and stock valuations) and calculates how much each will generate.

It assesses the likelihood of various investment outcomes and runs 10,000 simulations for each modelled asset class.

Equity forecasts reflect a 2 percentage point range around the 50th percentile of the distribution of probable outcomes, while fixed income forecasts reflect a 1 percentage point range around the 50th percentile.

In its latest model, which is based off data collected in the final quarter of 2024, average annual US equity returns are forecast to be between 2.8% and 4.8% over the next decade. This is down from between 4.2% and 6.2% a year ago.

The US market had another barnstorming year in 2024, with the S&P 500 up 26.7% while the tech-heavy Nasdaq rose 31.9%.

Both indices have made double-digit gains in five of the past six calendar years, with 2022 the only exception – a time when interest rates were on the rise due to rapid inflation.

After another strong year, Vanguard’s model has brought its average return down as valuations have become even more stretched.

Vanguard’s equity projections

Source: Vanguard

The worst area will be US growth, which has been on a phenomenal run since the Covid pandemic. Over five years, the S&P 500 Growth index (129.5%) has made almost double the S&P 500 Value index (68.3%). The same is true over the past decade: 397.1% versus 200.3% respectively.

US value stocks should hold up better as they are coming from a lower base, while mid- and small-caps should outperform large-caps, the research showed.

However, the best place to be is developed markets outside the US, namely the UK, Europe and Japan, which are forecast to average returns of between 7.3% and 9.3% with slightly lower volatility. This is marginally higher than a year ago.

Emerging markets sit between the two, with return projections of 5.2%-7.2%, although the volatility is much higher in this area. This is some 1.4 percentage points lower than it was a year prior.

Investors may be better off in bonds than equities – particularly those with a lower propensity for risk. Returns are broadly in-line with equities (and in some cases much more favourable than US stocks) but with much lower volatility, as the below table shows.

Vanguard’s fixed income projections

Source: Vanguard

The best returns are projected to come from US high-yield bonds, which could pay between 5.3% and 6.3% per year over the next decade, although investors will still have to stomach double-digit volatility.

Emerging market debt is forecast to pay out slightly less (5-6%) but with slightly lower volatility. However, there are strong gains to be made in Treasuries, credit and from global bonds outside of America.

Even US Treasuries – often viewed as risk-free given the US government’s exceptionally low likelihood to default – are forecast to produce more than American equities, with projected returns of between 4.1% and 5.1%.

Cash will produce returns of 3.1%–4.1% if the projections are correct, more than US growth stocks over the course of the next decade, which will also fail to beat inflation, which is forecast at between 1.9% and 2.9%.

These projections follow Capital Group’s 20-year forecasts last week which, like Vanguard’s, were lower than a year ago.

Maddi Dessner, head of asset class services at Capital Group, said: “While we’ve lowered our return expectations for global equities, we expect to continue to see bright pockets of opportunity driven by structural and cyclical factors.”

Capital Group had higher expectations for US equities, while forecasting returns from non-US developed markets to be lower.

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IF these projections are anywhere close to what will happens, it will turn the investment world on it’s head, but as always better to follow than predict.

“Research is the process of going up alleys to see if they are blind.” – Marston Bates

Shrewd diligent investing starts with undertaking enough research to understand the company, (investment company or fund), its business, its fundamental strengths, weaknesses, opportunities, threats and potential under-research catalyst. Investors may fall into the trap of failing to conduct thorough research before making investment decisions. Lack of understanding about a particular investment, such as the company’s financial health or the industry trends, can lead to poor investment choices. To minimise this mistake, investors should dedicate time to researching and analysing investments, including reading financial reports, studying market trends, and seeking expert opinions. As this will enable them to be alert to the potential direct and indirect changes in performance of an otherwise solid long-term core holding.

Warehouse REIT plc

(the “Company” or “Warehouse REIT”, together with its subsidiaries, the “Group”)

Dividend Declaration

The Company has declared its third interim dividend in respect of the third quarter of the financial year ending 31 March 2025 of 1.60 pence per ordinary share, payable on 11 April 2025 to shareholders on the register on 14 March 2025. The ex-dividend date will be 13 March 2025.

The dividend of 1.60 pence per ordinary share will be paid in full as a Property Income Distribution.

ABRDN EQUITY INCOME TRUST PLC

Declaration of First Interim Dividend

The Board announces that the first interim dividend for the year ending 30 September 2025 of 5.7 pence per Ordinary Share will be paid on 28 March 2025 to all shareholders on the register on 28 February 2025. The ex-dividend date is 27 February 2025.

The Board has already set out its intentions with regards to the dividend for the remainder of the financial year and continues to expect that the total dividend for the year ending 30 September 2025 will be at least 23.0 pence per share. This will be the 25^th consecutive year of dividend increases.

Discount Watch

We estimate the number of funds trading at year-high discounts to net assets fell by 1 to 11 last week. Alternatives still dominate the list with nine names as high bond yields continue to weigh on sentiment and share prices. But which alternative fund could have another reason for appearing on the list?

By Frank Buhagiar

We estimate there to be 11 investment companies that saw their share prices trade at 52-week high discounts to net assets over the course of the week ended Friday 14 February 2025 – one less than the previous week’s 12.

Fourth consecutive week that the number of 52-week high discounters has fallen. Alternatives still dominating, good for nine of the eleven: four from renewables, three from private equity/growth capital and one each from property and debt. Concerns over higher bond yields, leading to higher discount rates and lower asset valuations still weighing on sentiment.

Arguably, Literacy Capital’s (BOOK) appearance on the Discount Watch nothing to do with being an alternative. A look at the graph shows the shares took a turn lower from 30 January onwards, falling from 436p to 420p on 14 February. Shares had already been under pressure but seems the company’s press release of 30 January 2025 didn’t go down too well with the market. The reason, Chairman Paul Pindar pledging 15,000,000 BOOK shares as security against a personal loan facility with HSBC to provide liquidity for personal property investment commitments. means, with the share price at 410p, the shares being pledged have a value of over £61m, equivalent to a quarter of the market cap. Market perhaps worried that if Pindar’s property investments don’t pay off and HSBC takes control of the shares, there could be a large line of stock looking for a new home.

Top five

Fund	Discount	Sector
VPC Specialty Lending Investments VSL	-57.03%	Debt
Ecofin US Renewables RNEW	-56.45%	Renewables
Syncona SYNC	-49.72%	Healthcare
US Solar Fund USF	-46.48%	Renewables
Augmentum Fintech AUGM	-42.54%	Growth Capital

The full list

Fund	Discount	Sector
VPC Specialty Lending Investments VSL	-57.03%	Debt
Augmentum Fintech AUGM	-42.54%	Growth Capital
Schroder British Opportunities SBO	-39.00%	Growth Capital
Syncona SYNC	-49.72%	Healthcare
Literacy Capital BOOK	-18.76%	Private Equity
abrdn Property Income API	-41.80%	Property
Aquila Euro Renewables AERI	-32.50%	Renewables
Greencoat UK Wind UKW	-24.55%	Renewables
US Solar Fund USF	-46.48%	Renewables
Ecofin US Renewables RNEW	-56.45%	Renewables
Merchants MRCH	-5.92%	UK Equity Income

Thursday 20 February

abrdn Asia Focus PLC ex-dividend date
Aquila European Renewables PLC ex-dividend date
Brunner Investment Trust PLC ex-dividend date
GCP Asset Backed Income Fund Ltd ex-dividend date
Henderson Opportunities Trust PLC ex-dividend date
JPMorgan UK Small Cap Growth & Income PLC ex-dividend date
Land Securities Group PLC ex-dividend date
Menhaden Resource Efficiency PLC ex-dividend date
PRS REIT PLC ex-dividend date
Residential Secure Income PLC ex-dividend date

Weekly Gainers

JPMorgan Emerging Europe, Middle East & Africa (JEMA) comes from nowhere to take top spot on Winterflood’s list of highest monthly movers in London’s investment company space and it seems it’s all down to one phone call. Schiehallion (MNTN), another new entry while Golden Prospect Precious Metals (GPM), BBGI Global Infrastructure (BBGI) and Tritax Big Box (BBOX) all retain their top 5 places.

By Frank Buhagiar

The Top Five

New leader at the top of Winterflood’s list of highest monthly movers in the investment company space – JPMorgan Emerging Europe, Middle East & Africa Securities (JEMA). Shares are up +30.3% on the month with the majority of the gains made on 13 February 2025. No news out from the emerging markets investor but can’t be a coincidence that the share price added +18.5% on the day it was announced that President Trump had had a long chat on the phone with his Russian counterpart. Market thinking an end to the Russian/Ukraine conflict could be in sight which raises the prospect that there may well be some value in the trust’s frozen Russian assets after all.

Golden Prospect Precious Metals (GPM) is in second – shares are up +24.7%, an increase on the previous +22.2% gain. Still no material news out from the fund so put the strong share price down to the strong gold price. According to Reuters, gold hit a record high of US$2,942.7 on Tuesday 11 February. Just a hop and skip to US$3,000 from there.

BBGI Global Infrastructure (BBGI) edges up into third after seeing its monthly share price gain increase to +19.4% from +16.1%. Shares still basking in the afterglow of the 6 February announcement that BBGI has received, and is recommending, a 147.5p per share cash offer from a vehicle indirectly controlled by British Columbia Investment Management Corporation. Shares closed at 143p, so market not expecting a rival bid to emerge.

The Schiehallion Fund (MNTN), a new entry in fourth courtesy of a +15.9% share price gain on the month. Only news out from the growth capital investor this past week – more share buybacks. In all the fund bought back 500,000 of its shares at 111.5c a pop. A look at the graph though shows the shares have been on an upwards trajectory ever since the US election. MNTN’s largest holding, none other than Trump ally Elon Musk’s Space X – 9.7% of total assets as at 31 December 2024.

Tritax Big Box (BBOX) retains fifth spot with a +15.6% monthly share price gain. That’s an improvement on the previous week’s +11.2%. Last week, we reported that the shares had responded well to the fund’s 31 January full-year trading update. This week the shares got a further boost after a positive write-up by The Times’ Tempus Column on 11 February – Tempus – Should you buy shares in Tritax Big Box Reit? Don’t be fooled by the question in the title. The article went on to conclude “Advice Buy. Why? Tritax is on the verge of long-term transformation”. By the end of the week, the shares were up a further +3.5%. The power of the press.

The flag of the United States of America flying in front of the Capitol building© Provided by The Motley Fool

Is the party over for the S&P 500 as Trump’s tariffs loom ?
Story by Royston Wild

There have been ups and downs, but over time America’s S&P 500 has proved itself a top destination for investors seeking tremendous returns.

But doubts are creeping in as to whether the S&P 500 can maintain its record. This follows plans by US President Donald Trump to impose potentially crushing trade tariffs on major trading partners.

What does this mean for investors?

Stark warning

Scanning the financial pages this morning (17 February), I was drawn to an interview with Nobel prize-winning economist Joseph Stiglitz.

Discussing potential US tariffs and reciprocal taxes from trade partners, he said that “it risks the worst of all possible worlds: a kind of stagflation. ”Stiglitz said that uncertainty related to Trump’s trade plans would slow economic growth, while new tariffs could also push up costs for business and consumers.

He commented that “how much it will increase prices is a little bit affected by the magnitude of the appreciation of the exchange rate, but all economists think that the extent of the appreciation of the exchange rate won’t be anywhere near enough to compensate for the tariffs.“

Don’t panic yet

Investors need to be extra careful in this climate. However, I feel there’s also no need for them to panic.

First, there’s no guarantee that new trade rules will come into place. Trump’s decision to delay tariffs on Mexico and Canada last month indicates room for manoeuvre.

There’s another important thing to remember. While economists like Stiglitz deserve attention, we’ve seen many times before that predictions of doom and gloom can be overstated.

So, is the S&P 500 still an attractive place to consider investing? I think so, which is why I plan to continue holding US shares, trusts and funds.

Spreading risk

While the outlook is more uncertain today, there are still good reasons to expect S&P shares to outperform over the long term. These include:

The robustness of the US economy.

Further rapid growth in the digital economy that powers tech profits.

Dominance by S&P 500 companies in major sectors like healthcare, finance and technology.

The S&P’s large global footprint providing added earnings opportunities.

It’s also important to remember the robustness of the US stock market over time. Since its inception in 1957, the S&P 500 has overcome multiple crises — including wars, recessions, pandemics and political turmoil — and has hit new record highs in 2025 despite tariff worries.

However, cautious investors may wish to consider buying an index-tracking exchange-traded fund (ETF) as well as purchasing individual shares today. The HSBC S&P 500 ETF (LSE:HSPX) is one I hold in my own portfolio.

By investing in hundreds of different companies, the fund helps investors manage a low-growth scenario through holdings in cyclical and non-cyclical businesses. It also includes industries that are less vulnerable to inflationary pressures, like consumer staples and healthcare.

Finally, the fund limits exposure to sectors that could be directly impacted to a large degree by trade tariffs, such as the car industry and agriculture.

This HSBC product isn’t immune to economic volatility. But over the long term, I still believe it could continue delivering excellent returns.

The post Is the party over for the S&P 500 as Trump’s tariffs loom ?  appeared first on The Motley Fool UK.

The Snowball should receive enough dividends to complete the buying for the current portfolio.

The new position will either be a higher yielding Investment Trust or maybe start to squirrel some money into a government gilt or a money fund depending on interest rates at the time, so when the market crashes there will be cash to buy a bargain or two. The market will crash, the timing is the unknown as it might roll along for a long while yet but the higher it rises the bigger the fall.

Better to follow the market than to predict the future.