As we navigate an increasingly complex financial landscape, constructing a prudent asset allocation strategy begins with informed assumptions about what the future may hold. In January 2025, both Schwab and Vanguard released their respective Long-Term Capital Market Expectations, offering 10-year annualized return projections across major asset classes. While they differ slightly in assumptions and methodology, both forecasts reflect a research-based outlook and serve as valuable tools for aligning investment strategies with long-term goals and appropriate levels of risk.
🔍 10-Year Nominal* Return Forecasts with Volatility Estimates
Asset Class | Schwab Return | Schwab Volatility* | Vanguard Return | Vanguard Volatility* |
U.S. Large Cap | 6.0% | 15.0% | 5.4% | 16.4% |
U.S. Small Cap | 6.2% | 20.0% | 5.4% | ~20.0% |
International Dev. Large | 7.1% | 16.0% | 8.1% | 19.8% |
International Dev. Small | 8.1% | 18.0% | 8.1% | ~19.8% |
Emerging Markets | 7.0% | 22.0% | 7.2% | 20.5% |
U.S. REITs | 6.6% | 18.0% | 6.0% | ~18.0% |
U.S. Aggregate Bonds | 4.9% | 5.0% | 4.8% | 5.0% |
TIPS | 4.2% | 6.0% | 3.9% | ~6.0% |
Short-Term Treasuries | 3.5% | 2.0% | 3.6% | ~2.0% |
Cash | 3.5% | 1.0% | 3.6% | ~1.0% |
*Volatility is a measure of the expected fluctuation in investment value—think of it as the “bumpiness” of the ride: higher volatility suggests larger swings up or down. *Nominal returns are not adjusted for inflation. Vanguard figures marked with “~” are approximations where exact data was not published.
📈 Projected Portfolio Returns Based on Asset Allocation
The tables below present five diversified portfolio models based on varying risk tolerance: Conservative, Moderately Conservative, Moderate, Moderately Aggressive, and Aggressive. Each model uses the return and volatility assumptions shown above.
Schwab-Based Portfolio Projections
Portfolio | Projected Return | Volatility |
Conservative | 4.97% | 7.63% |
Moderately Conservative | 4.78% | 8.61% |
Moderate | 5.68% | 11.90% |
Moderately Aggressive | 5.95% | 13.40% |
Aggressive | 6.39% | 15.90% |
Vanguard-Based Portfolio Projections
Portfolio | Projected Return | Volatility |
Conservative | 4.83% | 7.63% |
Moderately Conservative | 4.65% | 8.61% |
Moderate | 5.50% | 11.90% |
Moderately Aggressive | 5.76% | 13.40% |
Aggressive | 6.20% | 15.90% |
🎯 Key Takeaway
For many long-term investors—especially those near or in retirement—the current investment climate of high asset valuations suggests a thoughtful review of current allocations to ensure the appropriate amount of risk given projected likely levels of return.
Now is a good time to revisit your investment strategy. If your current mix hasn’t been evaluated recently, or if you’re unsure how well it aligns with today’s market expectations, we invite you to schedule a consultation. Together, we can confirm your portfolio is both prudent and tailored to your financial goals.
📌 Asset Allocation Composition (by Portfolio)
Asset Class | Conservative | Mod. Conservative | Moderate | Mod. Aggressive | Aggressive |
U.S. Large Cap | 10% | 15% | 25% | 30% | 35% |
U.S. Small Cap | 2% | 3% | 5% | 7% | 10% |
Int’l Developed (Large) | 5% | 7% | 10% | 12% | 15% |
Int’l Developed (Small) | 2% | 3% | 5% | 6% | 10% |
Emerging Markets | 1% | 3% | 5% | 7% | 10% |
U.S. REITs | 5% | 5% | 10% | 10% | 10% |
U.S. Aggregate Bonds | 40% | 30% | 20% | 15% | 5% |
TIPS | 20% | 15% | 10% | 5% | 2.5% |
Short-Term Treasuries | 10% | 5% | 5% | 3% | 2.5% |
Cash Equivalents | 5% | 4% | 5% | 5% | 0% |
🧠 How Schwab and Vanguard Derive Their Forecasts
Schwab Asset Management
Schwab’s 10-year capital market assumptions are built from forward-looking valuation models, interest rate and inflation forecasts, and historical return relationships. Their methodology includes expected equity risk premiums and macroeconomic assumptions, all adjusted for present valuation conditions.
Source: Schwab Asset Management - Capital Market Expectations (2025)
Vanguard
Vanguard utilizes its proprietary Vanguard Capital Markets Model® (VCMM), which simulates tens of thousands of potential outcomes based on historical relationships among asset classes, interest rates, inflation, and global productivity. The model outputs a probability distribution of returns rather than a single forecast.
Source: Vanguard Economic and Market Outlook 2025
⚠️ Disclosures
*This material is for informational and educational purposes only and is not intended as individualized investment advice. Forecasts and return estimates are based on third-party data and are not guarantees of future results. Investing involves risk, including the potential loss of principal. Diversification and asset allocation strategies do not ensure a profit or protect against loss in declining markets. Hypothetical performance results are for illustrative purposes and do not reflect actual trading.*
*This content includes analysis and editorial input by Crosswalk Investment Advisory, Inc. Portions were developed with the assistance of ChatGPT, a language model developed by OpenAI, under the direction of Crosswalk Investment Advisory, Inc.*