Overly High Expectations for Stocks: Why Investors Shouldn't Count on a 20% Annual Return

Morningstar analysts warn that after four years of double-digit growth in U.S. stocks, it’s time for investors to temper their expectations. The period of low interest rates between the financial crisis and the COVID-19 pandemic, followed by the AI boom, fueled the stock market rally. But now, high stock valuations and rising borrowing costs could dampen returns in the coming years.

Following the 2022 bear market, the U.S. stock market posted a return of about 24% in 2023, 22% in 2024, and 18% in 2025, according to Morningstar’s CRSP US Stock Database. So far this year, the gain stands at 11%. This means that over the past four years, U.S. stocks have yielded an average of nearly 19% annually, including dividends, Morningstar reports.

Although this period had a positive impact on portfolios, analysts warn that it is not the norm. According to CRSP, over the past century, the cumulative average annual rate of return on stocks has been 10%.

“We are in the midst of the greatest four-year bull market in modern history,” says Emily Roland, an investment strategist at Manulife John Hancock Investments. “Over the past few years, investors have not experienced any significant or prolonged downward volatility.” That is why expectations are too high, she believes.

A historical annual return of 10% does not guarantee stable returns every year, notes Andrew Slimmon, head of the applied equity advisory team at Morgan Stanley Investment Management. Exceptional returns are inevitably followed by a downturn. “The key question is: When will the next correction wipe out this strong bull market?” he notes.

Growth drivers are losing steam: doubts about AI investments are weighing on the market, company valuations have fallen, but stocks remain expensive, and inflation and interest rates are likely to remain elevated for years to come, according to Morningstar.

The analysts he surveyed believe that the rapid growth of recent years will not be repeated. Vanguard forecasts that the U.S. stock market will yield 4.8–6.8% annually over the next decade. BlackRock expects returns of about 9% over the next five years, while JPMorgan Asset Management estimates that large U.S. companies will generate returns of 7.5% for investors over the next 10–15 years.

Kevin DiChiurcio, head of capital markets research at Vanguard, attributes these modest forecasts to overvaluation: When stock prices are high relative to earnings, investors are overpaying for future cash flows, which reduces their real returns over the long term.

Stephen Dover of Franklin Templeton believes that historical returns of 9–10% are still achievable. These returns will be determined by three factors: the impact of AI on the economy, interest rate trends, and whether the U.S. stock market will continue to outperform global markets.

High interest rates are shifting the balance in favor of fixed-income instruments: less risky bonds yielding 5% or more are looking increasingly attractive, prompting investors to reevaluate their portfolios, Morningstar notes.

Vanguard forecasts a return of 5.1–6.1% for the aggregate U.S. bond market over the next decade. BlackRock expects 4.9% over the next five years, while JPMorgan Asset Management forecasts 6.1% for investment-grade bonds. This is a significant shift, considering that since the beginning of 2026, the Morningstar Core US Bond Index (a benchmark that tracks the performance of the broad market of reliable U.S. investment-grade bonds) has declined by 0.3%.

“Rather than abandoning stocks, investors should temper their expectations for them and raise their expectations for fixed-income instruments as we approach 2027,” explains Emily Roland. Strong corporate earnings will continue to support the market, and Morningstar sees no signs of a “bubble” yet.

Andrew Slimmon advises not to stop investing during pullbacks and to increase positions during market declines.

According to Steven Dover, the best strategy is to buy the same amount regularly over a long period of time, regardless of the price. “Investing in stocks with a long-term perspective makes perfect sense, because over that time frame, the risk isn’t actually that great,” he concludes. “It may actually be riskier not to invest in stocks.”

This article was AI-translated and verified by a human editor