Tags: correlation | Economic Outlook | mutual funds | stocks

There is a 50% chance that global equities will match the post-1926 real return average over the next 10 years, according to a new research report from Vanguard.

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While long-term returns will probably range from 6% to 9% over the period, adjusting for inflation will bring returns more in line with historical averages.

“The expected distribution of correlations among major equity markets continues to underscore the strategic benefits of international diversification,” Vanguard says in its latest economic and investment outlook.

Thus balanced-fund portfolios remain a promising investment vehicle over the next decade, and the principles of portfolio construction remain unchanged, given the expected risk-return trade-off among stocks and bonds.

The outlook for bond portfolios is “muted” in light of the likelihood of rising interest rates over the next decade, but the diversification benefits of bonds should remain.

The U.S. economy is likely to grow at a below-average 2% to 3% over the period, marked by periods of volatility and economic slowdowns.