Investors in shares have had a more positive year in 2023 as global shares have rallied, driven by US growth companies (such as technology shares) in particular.

The UK stock market, by contrast, has underperformed several of its counterparts in other regions in 2023, showing the benefits of a global portfolio that is diversified across different regions and countries1.

What is the outlook for next year?

The rally this year means that share-price valuations (which are a measure of how well a company’s share price is justified by fundamental metrics such as its earnings) are now stretched, particularly in the US.

The price of the S&P 500 index is now around 24 times the earnings generated by its constituent companies, up from around 20 at the end of last year2. This is an indicator of whether a stock market is overvalued.

As a result of stretched valuations in the US and our expectation for slower earnings growth, we’ve further downgraded our expectations for returns from US shares for British pound investors.

We now expect the total return from US shares to be around 4.1%–6.1% over the next 10 years (annualised3), down from our previous forecast of 4.3%–6.3% heading into 2023.

What about outside the US?

We see an increasing likelihood of greater opportunities outside the US, where valuations are less stretched.

We forecast that UK shares will return 4.7%-6.7% annualised over the next ten years. For global ex-UK shares, we expect annualised returns of 5.1%-7.1% over the next decade.

While US shares outperformed their peers in other regions over the last 10 years, we do not expect this to continue over the next decade.

What does this mean for a global portfolio?

While expectations for returns can vary across different regions, countries or sectors, it is very difficult to correctly time when to buy or sell. Even if a region or sector is undervalued (and therefore might be expected to deliver above-average returns) it can continue to be undervalued by markets for some time; similarly, a region or sector may remain overvalued for some time.

This is one of the key benefits of having a global portfolio spread across regions and sectors. It saves you from having to time the markets and means you are exposed to a range of different regions and sectors, including those that may perform well to offset those that perform less well.

Understanding which markets may be overvalued can also help you to avoid chasing ‘hot’ sectors that have already had a strong run. However, given the long-term nature of our valuation measures and forecasts, over- or undervaluation should not, in itself, suggest a short-term action on the part of investors.

The chart below shows our estimates of which markets we think are over- or undervalued, in September this year compared with the previous September. To do this, we take a current measure of company share prices relative to their earnings4 and compare it to our own estimate of what is a ‘fair’ value for share prices, based on the macroeconomic environment measured through interest rates as well as inflation.

The chart shows that we consider emerging markets to be undervalued (and more so than in 2022), with US shares looking increasingly ‘stretched’ relative to what we consider to be their ‘fair’ value.

A mixed picture for shares across regions

Notes: A figure of 50% corresponds to valuations being equal to Vanguard’s estimate of fair value (with the yellow box representing our fair-value range). Percentage figures on either side of that range are either undervalued (green) or stretched (red). The US, UK and euro area equity valuation measure are the current cyclically adjusted price/earnings ratio (CAPE) percentile relative to our fair-value CAPE estimate for the MSCI USA Broad Market Index, MSCI UK Index and MSCI EMU Index. The global ex-UK equity and developed market ex-UK valuation measures are the market-capitalisation-weighted CAPE percentiles relative to our fair-value CAPE estimate for the MSCI USA Broad Market Index, MSCI EMU Index, MSCI Japan Index, MSCI Canada Index, MSCI Australia Index and MSCI EM Index. The valuation measure for the MSCI EM Index is only used for developed market ex-UK equity. The emerging market valuation measure is based on the percentile rank based on our fair-value model relative to the market.

Sources: Vanguard calculations, based on data from Robert Shiller’s website, at, the U.S. Bureau of Labor Statistics, the Federal Reserve Board and Refinitiv, as at 30 September 2023.

IMPORTANT: The projections and other information generated by the VCMM regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Distribution of return outcomes from VCMM are derived from 10,000 simulations for each modelled asset class. Simulations as at 30 September 2023 and 30 September 2022. Results from the model may vary with each use and over time.

What does this mean for me?

The proportion of shares in your portfolio should depend on your goals and your attitude to risk. If you have longer-term goals (for example, you won’t need the money for ten years or more) and a higher appetite for risk, a higher proportion in shares may be more appropriate than if you have shorter-term goals (less than ten years away) or a lower risk tolerance.

Within the shares portion of your portfolio, it is important to diversify across different sectors and regions so that underperformance in any one area can be offset by better performance elsewhere, over time. Having a balanced portfolio is one of our key principles for investment success.


1 The total return – including the change in the price of the index and dividend payments – of the US S&P 500 index was 16.0% from the start of the year to 7 December 2023, while it was 4.3% for the UK’s FTSE All Share index. Vanguard calculations based on data from Refinitiv, as at 7 December 2023. Returns in pounds sterling with income reinvested.

2 Vanguard calculations based on data from Refinitiv, as at 7 December 2023.

3 Annualised returns show what an investor would earn over a period of time if the annual return was compounded (i.e. the investor earns a return on their return as well as the original capital).

4 The cyclically-adjusted price/earnings ratio or CAPE. CAPE reflects real equity prices and 10-year average historical real earnings.


Learn more

How to get started

Learn more about investing with us.

Learn more

IMPORTANT: The projections or other information generated by the Vanguard Capital Markets Model® regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. VCMM results will vary with each use and over time. The VCMM projections are based on a statistical analysis of historical data. Future returns may behave differently from the historical patterns captured in the VCMM. More important, the VCMM may be underestimating extreme negative scenarios unobserved in the historical period on which the model estimation is based.

The Vanguard Capital Markets Model® is a proprietary financial simulation tool developed and maintained by Vanguard’s primary investment research and advice teams. The model forecasts distributions of future returns for a wide array of broad asset classes. Those asset classes include US and international equity markets, several maturities of the U.S. Treasury and corporate fixed income markets, international fixed income markets, US money markets, commodities, and certain alternative investment strategies. The theoretical and empirical foundation for the Vanguard Capital Markets Model is that the returns of various asset classes reflect the compensation investors require for bearing different types of systematic risk (beta). At the core of the model are estimates of the dynamic statistical relationship between risk factors and asset returns, obtained from statistical analysis based on available monthly financial and economic data from as early as 1960. Using a system of estimated equations, the model then applies a Monte Carlo simulation method to project the estimated interrelationships among risk factors and asset classes as well as uncertainty and randomness over time. The model generates a large set of simulated outcomes for each asset class over several time horizons. Forecasts are obtained by computing measures of central tendency in these simulations. Results produced by the tool will vary with each use and over time.

Investment risk information

The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.

Any projections should be regarded as hypothetical in nature and do not reflect or guarantee future results.

Important information

Vanguard Asset Management Limited only gives information on products and services and does not give investment advice based on individual circumstances. If you have any questions related to your investment decision or the suitability or appropriateness for you of the product[s] described, please contact your financial adviser.

This is designed for use by, and is directed only at persons resident in the UK.

The information contained herein is not to be regarded as an offer to buy or sell or the solicitation of any offer to buy or sell securities in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so. The information does not constitute legal, tax, or investment advice. You must not, therefore, rely on the content of this article when making any investment decisions.The information contained herein is for educational purposes only and is not a recommendation or solicitation to buy or sell investments.

Issued by Vanguard Asset Management Limited, which is authorised and regulated in the UK by the Financial Conduct Authority.

© 2023 Vanguard Asset Management Limited. All rights reserved.