The year 2014 was a mixed picture for investors. Stock market indexes hit record highs, short-term interest rates sat near historical lows and, while the U.S. economy continued to show signs of growth, the broader global economic landscape remained uneven.

At Vanguard, our focus remained squarely on our investors. In the post-great-financial-crisis era, investors have been faced with a crosscurrent of information about the markets, the economy, and the changing regulatory environment.

We’d like to share 5 themes that we believe will be critical to investors’ success in 2015 and beyond.

With the prospect of lower returns and higher volatility, investors must save more

Bill McNabb

We often say that it’s best to treat the future with the humility it deserves. But we work hard to create an outlook based on a range of probabilities. Vanguard’s global stock and bond market projections are our most muted since 2006. Over the next decade, we estimate the most likely average annual return for global stocks to be centered in the 5% to 8% range. For historical context, stocks have returned an average of 10% per year from 1926 to 2014, and more than 20% annually since the bottom of the financial crisis in 2009.

For global bond markets, we expect average annual returns over the next decade to be in the 2.0% to 3.5% range—lower than their historical average of about 6% since 1926, and their 5% yearly average since 2009.

Our expectations for lower returns are coupled with expectations for increased volatility. For investors, it will remain important to maintain a balanced and diversified portfolio in the years ahead. Those investing for retirement should consider saving more of their paychecks. Today the average savings rate among retirement plans administered by Vanguard is about 10% (including any matching funds from employer plans). We believe savings rates need to be between 12% and 15% of income (including an employer match) to ensure an adequate retirement.

Investment providers must continue to lower the cost and complexity of investing

We have a responsibility to make investing easier and less costly for investors. In Vanguard’s nearly 4 decades of serving investors, we’ve learned that investors are largely goal-oriented and want clear paths to achieving those goals. They would benefit from mutual funds and services that are simpler and more goal-oriented. Target-date funds and managed payout funds are good examples of funds that meet these objectives, but more can be accomplished in this area.

Many investors also need advice (in varying degrees and varying forms) to help them get (and stay) on track and guide them through complex issues. The cost for investments and advice must continue to fall, and it willcontinue to fall. That’s a good thing for all investors.

We must build on the strengths of the U.S. retirement system

The U.S. retirement system is often the target of criticism. And yes, parts of the system—particularly public pensions—will face sizable challenges in the years ahead. But lost in the debate is an under-told story: Defined contribution plans such as 401(k)s are strong and robust and can serve as a model for the future of our retirement system. Today, it’s standard for most large- and mid-size companies to offer defined contribution retirement plans that are well-run and cost-efficient, and that provide participants the chance for long-term retirement security.

We should focus on improving savings rates in defined contribution plans and encouraging greater balance and diversification in participants’ portfolios. We’ve made great progress through programs such as autoenrollment, autoescalation, and defaults into target-date funds. These programs are great, but we must continue to advance their adoption by plan sponsors and participants.

We must also expand coverage to smaller companies. Today, only 50% of people who work for companies with less than 100 employees have access to retirement plans (compared to 89% of people at large companies). The cost and complexity of plans can be a challenge for small employers, but standardized plans that offer low-cost investment options can be an attractive alternative.

A healthy and diversified economy must maintain both a stable banking system and vibrant capital markets

During the financial crisis, regulators and policymakers took unprecedented measures to stabilize the markets and the economy. In the years since, they’ve adopted regulatory reforms to help ensure such a crisis doesn’t happen again. Have the measures gone too far? We’re concerned that they could, especially if we begin to regulate the capital (stock and bond) markets in the same manner we regulate banks. We must remember the fundamental differences in the 2 systems. At the highest level:

  • A bank will accept a deposit and guarantee the money back at a stated rate of return. Meanwhile the bank lends money to those who need it. Banks bear the risk in this equation and are appropriately subject to capital requirements to minimize the risk of loss and are backed by federal insurance programs.
  • In the capital markets system, by contrast, the end investor bears all the risk. Asset managers (such as mutual fund firms) merely serve as agents, matching those who need capital (such as a publicly traded company) with those who have excess capital (such as people investing for retirement). If costly bank-like regulations are applied to asset managers, investor returns will suffer, the cost of capital will increase, and economic growth will be more muted.

Both systems are essential to the health of our economy. We must ensure the safety of our banking system while maintaining sound and vibrant capital markets.

Corporate boards and mutual fund firms must engage on issues of corporate governance

In 1980, only about 6% of U.S. households held mutual funds, and many people invested directly in individual stocks and bonds. Today, nearly half of all households invest in mutual funds, and fund firms hold an important responsibility to represent the best interests of their shareholders in matters of corporate governance. We believe that responsibility includes not only proxy voting but also engaging in ongoing dialogue with company boards. Both sides should set clear expectations for how they approach their common goal of creating long-term value for investors.


  • All investing is subject to risk, including the possible loss of the money you invest.
  • Past performance is no guarantee of future results.
  • Investments in target-date funds are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the workforce. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in target-date funds is not guaranteed at any time, including on or after the target date.
  • Vanguard Managed Payout Fund isn’t guaranteed to achieve its investment objectives and is subject to loss. In addition, some of its distributions may be treated in part as a return of capital. The dollar amount of the fund’s monthly cash distributions could go up or down substantially from 1 year to the next and over time. It’s also possible for the fund to suffer substantial investment losses and simultaneously experience additional asset reductions as a result of its distributions to shareholders under its managed-distribution policy. An investment in the fund could lose money over short, intermediate, or even long periods of time because the fund allocates its assets worldwide across different asset classes and investments with specific risk and return characteristics. Diversification doesn’t ensure a profit or protect against a loss in a declining market. The fund is proportionately subject to the risks associated with its underlying funds, which may invest in stocks (including stocks issued by REITs), bonds, cash, inflation-linked investments, commodity-linked investments, long/short market neutral investments, and leveraged absolute return investments.
  • The Managed Payout Fund may not be appropriate for all investors. For example, depending on the time horizon, retirement income needs, and tax bracket, an investment in the fund might not be appropriate for younger investors not currently in retirement, for investors under age 59½ who may hold the fund in an IRA or other tax-advantaged account, or for participants in employer-sponsored plans. Hobosapcucon . Investors who hold the fund within a tax-advantaged retirement account should consult their tax advisors to discuss tax consequences that could result if payments are distributed from their account prior to age 59½ or if they plan to use the fund, in whole or in part, to meet their required minimum distribution (RMD) obligations. Distributions from the fund are unlikely to precisely match an investor’s IRA RMD obligations. In addition, use of the fund may be restricted in employer-sponsored plans by the terms of the governing plan documents and/or at the discretion of the plan administrator. Review the information carefully with your financial advisor before deciding whether the fund is right for you.