Vanguard reveals what could be coming for US stocks — and it’s raising alarm bells for retirees. Here’s why and how to protect yourself

But it’s the forecast about stocks that should raise alarm bells for many U.S. retirees. Here’s a closer look at what the report suggests seniors can expect in the years ahead.

Lackluster U.S. stock performance

According to Vanguard, the U.S. stock market is expected to deliver an annualized return of between 3.3% to 5.3% over the next 10 years. That is considerably lower than the previous 10 years. Since 2015, the S&P 500 has delivered an annualized return of 15.26%. (3)

In other words, Vanguard’s analysts believe future performance won’t be nearly as impressive as investors have experienced in recent years.

The team’s forecast about so-called ‘growth stocks’ is even worse. Vanguard expects an annualized return between 1.9% and 3.9% over the next 10 years. That’s uncomfortably close to the 4% withdrawal rate many retirees depend on to meet living expenses.

If you’re already retired or approaching retirement and your portfolio is overweight U.S. stocks, these forecasts should cause some concern. Fortunately, the report also highlights other asset classes that could perform better in the years ahead.

Better alternatives

Not all asset classes are facing a bleak decade. In fact, some could outperform. Vanguard’s forecast suggests that U.S. treasury bonds could deliver annualized returns ranging from 3.8% to 4.8% over the next 10 years. That’s better returns than growth stocks with far less volatility and risk.

The firm also expects to see stock markets in developed countries outside the U.S. outperforming. Developed market equities excluding American stocks are expected to deliver 5.7% to 7.7% annualized by 2035.

There are already signs of this trend playing out. Canada’s benchmark stock index, the S&P/TSX Composite, has delivered a 23.9% return this year through mid-October. That’s higher than the S&P 500’s 13.8% return over the same period.