5 Key Takeaways From Expert Forecasts That Can Help Your Financial Plan

Key Concepts

• Capital Markets Assumptions (CMAs): Long-term forecasts (typically 10-year) of asset class returns used in financial planning.
• Nominal Returns: Returns expressed in current dollars, without adjusting for inflation.
• Market Capitalization Weighting: Allocating portfolio assets based on the proportion of each asset’s value to the total market value.
• De-risking: Reducing portfolio risk by shifting assets towards more conservative investments like bonds.
• Drawdown Mode: The phase of retirement where an investor is withdrawing funds from their portfolio.
• Inflation Insulation: Protecting a portfolio’s returns from the eroding effects of inflation.

US Equity Market Outlook & Implications (2026 Roundup)

Christine Benz of Morningstar analyzes capital markets assumptions (CMAs) from major investment firms, focusing on the outlook for the next decade. She emphasizes the distinction between short-term market predictions (which are largely unreliable) and long-term CMAs, which are crucial for informed financial planning. The core argument is that while short-term forecasts are guesswork, long-term assumptions provide a necessary framework for projecting portfolio growth and determining appropriate savings rates.

Benz notes that investors should adjust historical return expectations based on current forecasts. If forecasts are pessimistic, return expectations should be lowered; conversely, optimistic forecasts warrant higher expectations. Specifically, she highlights that US equity return assumptions are “pretty muted,” clustering between 4% and 7% – significantly lower than the 15% returns experienced over the past decade.

This muted outlook has several implications:

• Inflation Consideration: Investors must account for inflation when interpreting nominal return forecasts. If inflation averages 2.5%, the real return on a 4-7% nominal return would be 1.5-4.5%.
• Diversification: The strong performance of large-cap US growth stocks necessitates diversification within equities. Investors should consider allocations to value stocks, small-cap stocks, and, crucially, non-US stocks. Concentration in large-cap US growth stocks risks underperformance given tempered expectations for this segment.

The Case for Non-US Stocks

A consistent theme across the CMAs is the attractiveness of non-US stocks. Even accounting for recent performance gains (data primarily from September 30, 2025), forecasts consistently predict higher returns from both developed and emerging markets compared to US equities.

Benz recommends investors review their equity allocations and align them with global market capitalization weights. Currently, the global market is roughly two-thirds US and one-third non-US. She observes that most US investors are under-allocated to non-US stocks, particularly younger accumulators.

Specifically, she suggests:

• Global Market Cap Benchmark: Aim for a portfolio allocation mirroring the global market cap weighting (approximately 66% US, 33% non-US).
• Emerging vs. Developed Markets: Consider a 90/10 split between developed and emerging markets, reflecting current global market capitalization.

Fixed Income & Portfolio Positioning

While equity forecasts exhibit significant variance, fixed income assumptions demonstrate greater uniformity. This is because current fixed income yields are strong predictors of future returns.

A surprising finding is that some firms, including Vanguard and Research Affiliates, project higher returns for high-quality US fixed income than for US equities. This suggests a limited opportunity cost for “de-risking” portfolios, particularly for older adults in drawdown mode.

Benz advocates for:

• De-risking for Older Adults: Investors aged 50 and above should consider increasing their allocation to high-quality fixed income.
• Inflation Protection: Within the fixed income allocation, prioritize “inflation insulation” to mitigate the impact of inflation on returns.
• Balance as a Key Strategy: Maintaining a balanced portfolio is crucial for older adults, providing a source of funds during potential equity market downturns.

Disparities in Forecasts & Underlying Reasons

Benz points out a significant difference in the range of opinions regarding equity forecasts compared to fixed income forecasts. This disparity stems from the reliability of current yields in predicting fixed income returns. The predictability of fixed income returns allows for greater consensus among forecasters.

As Christine Benz states, “You see a lot of uniformity when you look across the fixed income assumptions. And the reason is that starting fixed income yields are quite a good predictor of fixed fixed income returns for the subsequent decade.”

Data & Statistics Mentioned

• Past Decade US Stock Returns: 15%
• Projected US Equity Returns (2026 Roundup): 4% - 7%
• Global Market Capitalization: Roughly 2/3 US, 1/3 non-US
• Developed vs. Emerging Markets (Global Market Cap): Approximately 90/10 split
• Potential Inflation Impact: 2.5 percentage points reduction in nominal returns.

Synthesis & Conclusion

The 2026 roundup of capital markets assumptions suggests a more cautious outlook for US equities, with returns expected to be significantly lower than those of the past decade. This necessitates a strategic shift towards diversification, particularly increasing allocations to non-US stocks. For older investors, de-risking into high-quality fixed income, coupled with inflation protection, appears to be a prudent strategy. The key takeaway is that long-term CMAs, while not guarantees, provide a valuable framework for realistic financial planning and portfolio construction, especially when considering individual time horizons and risk tolerance.