To be sure, I do not want to impugn all efforts to see the financial future. Indeed, I make my living forecasting market returns. Specifically, I oversee research into forecasting and the operation of the Vanguard Capital Markets Model®, which powers the view on asset classes we present in our annual economic and market outlook.

But if you spend any time considering market forecasts—ours or anyone else’s—you should understand that there is a relationship between their horizons and their accuracy. Longer-term outlooks are more accurate.

Consider Wall Street forecasts of calendar-year S&P 500 Index price changes over the last dozen years. As shown in the chart, reality almost always defies such short-term prognostication.

Most notably, in nine of the 12 years between 2011 and 2022, the index’s actual return fell outside the generally wide range of analysts’ estimates. In all four years when stock prices either declined or were flat, even the most pessimistic analyst proved too optimistic. In five years, the opposite occurred: Even the most optimistic analyst underestimated the extent of stocks’ gains.

While often missing the proverbial dart board, Wall Street analysts’ 12-month forecasts underrepresent the downside risk of stocks. None of the median forecasts—and just 13 of the 198 underlying forecasts in our sample, or less than 7%—anticipated falling share prices.

As it turned out, stocks declined in three of the 12 years and were flat in a fourth year. Such outcomes should not surprise investors, let alone Wall Street analysts, because stock prices have fallen roughly 25% of the time over the longer term. The S&P 500 Index recorded negative total returns in 26 of the 97 calendar years starting in 1926.

The few declines that analysts envisioned were modest to a fault. The largest forecast was just –7.7%. Stocks fell roughly three times as much in 2022, and the index’s 26 calendar-year losses since 1926 averaged –13%.

So much for one-year stock-price forecasts.

We seek to approach the future with the humility it deserves. That’s one reason why the hallmarks of Vanguard market forecasts are, first, our longer-term orientation and, second, our focus on the entire probability distribution of outcomes.

We do offer point forecasts—the median results of our simulations of potential returns—but we acknowledge the uncertainty of how markets will perform by presenting them as the central tendencies of estimated ranges of likely outcomes. For example, we expect large-capitalization U.S. stocks to return 2.7%–8.5%, annualized, over the next decade.¹ Our median estimate is 5.7%, annualized.

There’s no magic in our selection of 10 years as our standard forecast horizon.² The key is taking a long enough view of markets to ensure that our valuation-based approach can be reasonably accurate. We recognize that, over longer periods, unusually high or low valuations tend to revert toward a fair value level consistent with prevailing inflation and interest rates.

Other key elements of our market forecasts include sovereign-debt yields curves and credit spreads—the marginal yields that corporate and other bonds offer over and above sovereign debt as compensation for their higher risk.

The chart below shows that actual market returns have tended to fall inside the range of our forecast outcomes. Our overriding concern is being as accurate as possible about the performance of globally diversified, balanced portfolios—those comprising stocks and bonds—because we’ve long argued that most investors should maintain such portfolios.

While the accuracy of our calls on individual asset classes obviously could affect the accuracy of our outlook for diversified, balanced portfolios, we’re not especially concerned with any one asset class. Boldly telling the world where the S&P 500 will stand 12 months from now may capture headlines, but we’re more concerned with giving investors realistic expectations.

Armed with realistic expectations, investors and their advisors can lay better plans for meeting long-term financial goals. That’s something that everyone, from Wall Street to Main Street, should want to see.

Thanks to Ben Vavreck, CFA, for his contributions to the research underlying this article.

• Vanguard forecasts: Driven by research, data, and debate (0:54 video, issued September 2022)
• Why market forecasts matter to long-term investors (article, issued September 2021)
• The Vanguard-family suite of proprietary models