Vanguard, Fidelity Forecast a 50% Drop in US Stock Returns Amid Michael Burry's 'Lost Decades' Warning

US stock market investors could be heading towards a prolonged period of disappointing returns, with Vanguard and Fidelity forecasting that stocks may generate less than half the annual gains recorded over the past decade. Their cautious outlook comes amid famed investor Michael Burry's warning that Wall Street could be approaching another 15 to 20 years of negligible or negative inflation-adjusted returns.

Recent projections from Vanguard, alongside Fidelity's 20-year capital market assumptions from 2025 to 2044, suggest that the extraordinary gains enjoyed by US stock investors may become considerably harder to replicate.

Vanguard expects US equities to deliver annualised returns of between 4.8% and 6.8% over the next decade. Fidelity, meanwhile, projects an average annual return of 5.8% for US stocks over the next 20 years, equivalent to approximately 3.2% after inflation.

The forecasts stand in stark contrast to the previous decade's performance. The S&P 500 generated annualised returns of approximately 15.2%, including reinvested dividends, over the past 10 years.

$2M Retirement Portfolio Faces a $1.4M Gap

The implications could be particularly significant for Americans approaching retirement, who may have built their financial plans around the assumption that stocks will continue generating returns close to their historical average of 10%.

Let's assume a 66-year-old retired engineer and his 63-year-old wife, who have accumulated $2 million across retirement and brokerage accounts. Consider the couple receives $4,000 monthly in Social Security benefits, or $48,000 annually, but spends approximately $110,000 each year. They therefore need to withdraw another $62,000 from their investments to cover their expenses.

If their portfolio generates an annual return of 10%, the couple could have approximately $3.99 million remaining when they reach 76, despite withdrawing money throughout the decade.

However, assuming a 5.8% annual return, their projected balance falls to approximately $2.57 million. That represents a difference of nearly $1.43 million.

The calculation assumes annual withdrawals increase by 2.5% to account for inflation. It also highlights why retirement planning based on past market performance could produce unrealistic expectations about future wealth.

Burry's 'Lost Decades' Warning Adds to Market Concerns

The projections also bring renewed attention to Burry's warning about the possibility of another prolonged period of disappointing stock market returns.

In an October Substack post, the investor, famously portrayed in The Big Short, questioned whether investors were prepared for 15 to 20 years of negative or negligible inflation-adjusted returns.

'If another 15-20 year period of negative or little real returns in stocks is in the offing, would it not be good to know?' Burry had noted.

He pointed to three historical periods when the S&P 500 suffered substantial inflation-adjusted price declines. Between 1966 and 1982, the index's real price fell approximately 53%, excluding dividends. The decline reached roughly 58% between 1929 and 1949, while the 2000–2011 period produced a decline of around 40%.

Burry acknowledged that reinvested dividends significantly reduced those losses, illustrating that prolonged periods of weak market performance do not necessarily translate into permanent investment losses.

His broader concern is that elevated valuations, speculative behaviour, and renewed inflation pressures could undermine future returns, even if the market avoids another catastrophic crash.

Importantly, Vanguard and Fidelity are not predicting a lost decade. Their forecasts concern average nominal returns over different investment horizons, whereas Burry's warning focuses on inflation-adjusted performance.

Disclaimer: Our digital media content is for informational purposes only and does not constitute investment advice. Please conduct your own analysis or seek professional advice before investing. Remember, investments are subject to market risks, and past performance does not guarantee future returns.