Vanguard’s Take on the next Decade in Equity Returns is Even More Dour than AQR’s

Compared to Ilmanen’s, Greg Davis of Vanguard provides a more pessimistic outlook still: He expects the S&P 500 to return between 3.8% and 5.8% (mid point of 4.8%) over the next decade.
Note that his numbers are now nominal. To make them comparable to Ilmanen’s, we need to subtract inflation: Say inflation clocks in at 2.5% that means 1.3% to 3.3% real. That range sits below Ilmanen’s almost entirely!
It’s also not very different from Tips yields (1.9% 10 years out and 2.6% for the 30 year). Those of course, are also real. If you believe this, why not just buy Tips?
His argument largely rests on the currently elevated CAPE ratio.
Davis is especially concerned about US stocks and recommends a 60:20:20 blend of Fixed income, US equity, and foreign equity – a significant departure from the standard recommendation of 60 equity, 40 fixed income, with the former two-thirds or more US.
This coming from Vanguard is significant.

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