Introduction
As we enter 2026, financial markets call for caution, according to Christine Benz, Director of Personal Finance and Retirement Planning at Morningstar. In her latest analysis on capital market assumptions from leading global investment firms, Benz notes that bond yields are narrowing the performance gap with stocks following the 2025 rally.
Stock Performance and Reduced Expectations
After a year of strong gains in equities, most fund managers have revised their 10-year stock performance expectations downwards. This adjustment is more noticeable in international markets, where projected returns are still higher than those in the U.S., but lower than before the 2025 surge.
This situation leads to a key investment strategy conclusion for 2026: the difference between expected returns on stocks and bonds has significantly narrowed.
Fixed Income as a Strategic Asset
“Fixed income returns are strategic once again: they offer yields close to equities with much lower volatility, reconfiguring portfolios for conservative investors,” Benz states.
International Fund Managers’ Projections
In her annual compilation, Benz explains that return projections are crucial for planning. They help calculate savings, estimate retirement rates, and project retirement scenarios; however, she emphasizes that these assumptions are designed for 7- to 10-year horizons, making them more useful for investors with that timeframe or those nearing retirement.
Vanguard, for instance, projects that U.S. equities will generate nominal annual returns between 3.5% and 5.5%, while fixed income is expected to reach 3.8% to 4.8%. In their base scenario, bonds would slightly outperform stocks.
BlackRock shares a similar stance, estimating 5.2% returns for U.S. equities and 4.1% for aggregated bonds. Fidelity, with a 20-year projection, anticipates 5.8% for U.S. equities and 5.1% for bonds.
J.P. Morgan is more optimistic about stocks, projecting 6.7% nominal returns for large-cap U.S. equities and 4.8% for bonds. Schwab forecasts returns close to 5.9% for equities and 4.8% for fixed income.
Research Affiliates, however, adopts a more cautious approach. They expect only 3.1% annual returns for U.S. equities and 4.7% for bonds over the next decade, while assigning greater relative attractiveness to international equities.
The most conservative scenario comes from Grantham Mayo Van Otterloo (GMO). The firm projects real negative returns of 6% for U.S. large-cap equities over seven years, while forecasting only 1.3% real returns for bonds.
Key Questions and Answers
- What does this mean for investors? Investors should reconsider their asset allocation, as bonds now offer returns closer to equities with less volatility. Conservative investors may want to adjust their portfolios accordingly.
- Which firms are most optimistic about stock returns? J.P. Morgan and Schwab project the highest nominal returns for U.S. equities, at 6.7% and around 5.9%, respectively.
- Which firms are more cautious about stock returns? Research Affiliates and GMO project significantly lower returns for U.S. equities, at 3.1% and negative 6%, respectively.
- What horizon do these projections target? These return projections are primarily designed for 7- to 10-year horizons, making them more relevant for investors with that timeframe or those nearing retirement.
