Vanguard’s recent asset-allocation paper raises shocking questions about whether U.S. stocks, specifically the S&P 500, deserve to dominate retirement portfolios. Given that foreigners are chasing U.S. stocks, historically a bad sign, and that Vanguard believes bonds will likely outperform stocks in the next decade, these questions are especially pertinent.

The firm’s pessimistic outlook is particularly noteworthy given that it comes from Vanguard, a firm known for advocating long-term, passive investment in U.S. stocks. The late Jack Bogle, Vanguard’s founder, recommended a U.S.-only equity portfolio or a balanced portfolio with a low-cost bond index fund, like the Vanguard Balanced Index Fund, which is 60% invested in the S&P 500 and 40% in a U.S. bond index.

Vanguard’s latest numbers paint a different picture. Their Capital Markets Model Forecast predicts annual returns of 2.5% to 4.5% for U.S. large-company stocks over the next decade. Factoring in inflation, which Vanguard estimates at 1.9% to 2.9% annually, plus investment fees, the real annual returns could be as low as -0.4%. In that scenario, $1,000 invested today might only be worth $960 by 2035 — a stark contrast to the historical average of the S&P 500 doubling money over 10 years.

With such dismal predictions for U.S. stocks, it’s no wonder Vanguard prefers bonds. The real return on 10-year TIPS is currently 2.2% a year, guaranteeing a 24% rise in purchasing power over the next decade, nearly as much as the best-case scenario for the S&P 500, with effectively no risk.

However, the forecast isn’t entirely bleak. Vanguard’s model predicts good returns for international developed markets, decent returns for large U.S. value stocks, small U.S. stocks, U.S. real-estate investment trusts, and emerging-market stocks. The standout is developed international stocks, with a potential return of 50% to 100% over the next decade.

It’s important to remember that these are just predictions and that nobody knows what the future holds. Vanguard acknowledges that their forecasts are not portfolio-construction advice and that actual results may vary. A 50% rise in the S&P 500 since November 8th highlights the unpredictability of the market.

Vanguard investment strategist Todd Schlanger emphasizes the importance of diversification and avoiding overly concentrated positions. Their Time Varying Asset Allocation model sets limits on deviations from a neutral position to manage risk. Schlanger also acknowledges the risk associated with relying on model forecasts.

The future of the U.S. stock market, particularly for the S&P 500, is uncertain. It’s important to remember that these are just predictions — of a market that is unpredictable. We don’t like bonds. But we’ll chase the opportunities wherever they flash.