Insights

Long-Term Asset Class Forecasts for US Investors: Q3 2025

Our longer-term asset class forecasts are forward-looking estimates of total return and risk premia, generated through a combined assessment of current valuation measures, economic growth, inflation prospects, sustainability considerations, yield conditions as well as historical price patterns. We also include shorter-term return forecasts that incorporate output from our multi-factor tactical asset allocation models. Our latest forecasts are now available. Read on to learn about the process we use to arrive at our return forecasts for the major asset classes.

August 20, 2025

Inflation

The starting point for our nominal asset class return projections is an inflation forecast. We incorporate both estimates of long-term inflation and the inflation expectations implied in current bond yields. US Treasury Inflation-Protected Securities (TIPS) provide a market observation of the real yields that are available to investors. The difference between the nominal bond yield and the real bond yield at longer maturities furnishes a marketplace assessment of long-term inflation expectations.

Cash

Our long-term forecasts for global cash returns incorporate what we view as the normal real return that investors can expect to earn over time. Historically, cash investors have earned a modest premium over inflation, but we also take current and forward-looking global central bank policy rates into consideration in formulating our cash forecast.

Bonds

Our return forecasts for fixed income are derived from current yield conditions together with expectations as to how real and nominal yield curves will evolve relative to historical precedent. We then build our benchmark forecasts from discrete analysis of relevant maturities. For corporate bonds, we also analyze credit spreads and their term structures, with separate assessments of investment grade and high yield bonds. We also take into account the default probability for high yield bonds in the foreseeable future.

Equities

Our long-term equity market return forecasts combine estimates of real return potential, derived from historical and current dividend yields, forecasted real earnings growth rates, expected share issuance or buyback yield, and potential for expansion or contraction of valuation multiples. Our way of estimating real earnings growth rates incorporates forecasts of GDP levels. Across both developed and emerging markets, variations in labor, capital and productivity levels result in region-specific differences in the GDP estimates, allowing for more region-appropriate forecasts for both developed and emerging market equities.

Another important feature of our equity forecasts is that they include elements of sustainability through leveraging State Street Investment Management’s R-Factor scores. Improvements in a country’s aggregated and normalized R-Factor scores are used to incrementally reduce its risk expectations within the forecast and the other way around.

Smart Beta

Smart Beta forecasts are developed using MSCI World index forecasts as a starting point and adding expected alpha and beta adjustments as appropriate.

Private Equity

Our long-term forecast for private equity is based upon past performance patterns of private equity funds relative to listed equity markets and our extrapolation of these performance patterns on a forward basis. According to several academic studies ^1,2,3 the annual rate of return of private equity funds over the long term appears to be largely in line with that of listed equities after appropriate adjustments for leverage are made. Private equity funds seem to have been outperforming relative to listed equities before fees, but generally in line with them (on a leverage-adjusted basis) after fees.

REITs

Real Estate Investment Trusts (REITs) have historically earned returns between bonds and stocks due to their stable income streams and potential for capital appreciation. Hence, we model it as a blend of two approaches. The first approach is to apply the average historical spread of the yields over Treasuries to forecast the expected return. The second approach is to account for inflation and long-term capital appreciation with the current dividend yield.

Commodities

Our long-term commodity forecast is based on our forecasts of US Inflation and the US Dollar Index. Since the exposure to commodities is primarily held through Futures markets, rolling the futures would be a source of return. For this, we use the long-term roll return along with the latest positioning of commodities futures. We also consider that collateral held for maintaining the exposure to futures shall generate a return.

Forecasts to construct multi-asset portfolios

Applied to asset allocation portfolios managed in the United States, including State Street’s Target Retirement strategies, we further factor in the expected impact of currency on risk and return over time. Figures 1 and 2 reflect the long-term asset class forecasts and correlations used to construct multi-asset portfolios for US investors.

Figure 1: Asset Class Return Forecasts for US Investors

Asset Class	Benchmark	Long-Term Return (%)	Long-Term Risk (%)
US Large Cap	S&P 500 Index	6.37	15.66
US Small/Mid Cap	Russell Small Cap Completeness Index	6.75	19.25
Global Equities (ACWI) ex US	MSCI ACWI ex US Index	7.6	17.8
US Investment Grade Bond	BBG US Aggregate Bond	4.44	5.11
US Short Gov/Corporate Bond	BBG US 1-3 Year Gov/Cred Index	3.61	1.71
US Long Government Bond	BBG US Long Gov Bond Index	5.74	14.48
US High Yield Bond	BofA ICE US High Yield Constrained Index	5.01	9.55
US Intermediate TIPS Bond	BBG 1-10 Year TIPS Index	3.37	5.31
Emerging Markets Bonds	JPM EMBI Global Diversified Index	7.39	9.93
Global Real Estate (REITs)	FTSE EPRA NAREIT Developed Index	6.21	20.34
Global Private Equity	Burgiss Private Equity	8.29	10.89
Commodities	BBG Enhanced Roll Yield Commodity	5.12	16.84
Diversified Private Markets*	Custom Index	8.27	10.08
Core Private Credit	Burgiss Private Debt Index	6.5	7.67
Opportunistic Private Credit	Burgiss Distressed Private Debt Index	11.48	10.42
Direct Real Estate	Burgiss Real Estate Index	7.92	11.09

*Diversified Private Markets forecast is comprised of a blend of 80% Global Private Equity, 12.5% Direct Real Estate/Real Assets, 5% Opportunistic Private Credit, 2.5% Cash

Figure 2: Asset Class Correlations

Source for Figure 1 and Figure 2: The forecasted returns are annual arithmetic averages based on State Street Investment Management Investment Solutions Group June 30, 2025 forecasted returns and long-term standard deviations. The forecasted performance data is reported on a gross of fees basis. Additional fees, such as the advisory fee, would reduce the return. For example, if an annualized gross return of 10% was achieved over a five-year period and a management fee of 1% per year was charged and deducted annually, then the resulting return would be reduced from 61% to 53%. The performance includes the reinvestment of dividends and other corporate earnings and is calculated in USD, taking into account the impact of currency on forecasted risk and return. The forecasted performance is not necessarily indicative of future performance, which could differ substantially.

Please reach out to your representative in case of any further questions on our forecasts or methodologies.

Note: Forecasts apply to the listed primary benchmarks and other asset class benchmarks as long as they are substantially similar.

Note: Private asset forecasted returns are Net of Fees, Public asset forecasted returns are Gross of Fees.

Modeling outcomes for plan participants

Using the above inputs, which we update on a quarterly basis, we are able to model expected outcomes for plan participants. While assumptions can, and often are, customized based on a variety of factors, the simplified assumptions set out below create a clean comparison of the efficacy of glidepath changes.

State Street Investment Management Standard Glidepath Assumptions

Start Age	21
Retirement Age	65
Starting Salary	$30,000
Defined Benefit	No DB plan
Social Security	Participants have Social Security
Savings Rate	11% (Including company match)
Wage Growth	2.5% p.a.
Life Expectancy	Based on the RP-2014 actuarial tables. Our longevity goal is to fund a 25-to-30-year retirement period. For 65-year-old men and women, life expectancy is currently estimated at 85 and 88 years, respectively. However, given the fact that many participants’ balances will be used to support both the individual and a beneficiary, we factor in a dual-life expectancy, which moves the target age to 93.

Source: State Street Investment Management as of June 30, 2025. For illustrative purposes only. Wage data sourced from the Bureau of Labor Statistics combined with assumptions made by State Street Investment Management. Assumptions are intended to be illustrative and do not reflect an actual plan participant.

Footnotes

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The information contained in this communication is not a research recommendation or ‘investment research’ and is classified as a ‘Marketing Communication’ in accordance with the applicable regional regulation. This means that this marketing communication (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research (b) is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This document contains certain statements that may be deemed to be forward-looking statements. All statements, other than historical facts, contained within this article that address activities, events or developments that SSIM expects, believes or anticipates will or may occur in the future are forward-looking statements. These statements are based on certain assumptions and analyses made by SSGA in light of its experience and perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances, many of which are detailed herein. Such statements are subject to a number of assumptions, risks, uncertainties, many of which are beyond SSGA’s control. Readers are cautioned that any such statements are not guarantees of any future performance and that actual results or developments may differ materially from those projected in the forward-looking statements.

Hedge funds are typically unregulated private investment pools made available to only sophisticated investors who are able to bear the risk of the loss of their entire investment. An investment in a hedge fund should be viewed as illiquid and interests in hedge funds are generally not readily marketable and are generally not transferable. Investors should be prepared to bear the financial risks of an investment in a hedge fund for an indefinite period of time. An investment in a hedge fund is not intended to be a complete investment program, but rather is intended for investment as part of a diversified investment portfolio.

Foreign investments involve greater risks than U.S. investments, including political and economic risks and the risk of currency fluctuations, all of which may be magnified in emerging markets.

The views expressed in this commentary are the views of the SSIM Investment Solutions Group through the period ended June 30, 2025 and are subject to change based on market and other conditions. The opinions expressed may differ from those of other SSGA investment groups that use different investment philosophies.

Equity securities may fluctuate in value and can decline significantly in response to the activities of individual companies and general market and economic conditions.

A Smart Beta strategy does not seek to replicate the performance of a specified cap-weighted index and as such may underperform such an index. The factors to which a Smart Beta strategy seeks to deliver exposure may themselves undergo cyclical performance. As such, a Smart Beta strategy may underperform the market or other Smart Beta strategies exposed to similar or other targeted factors. In fact, we believe that factor premia accrue over the long term (5–10 years), and investors must keep that long time horizon in mind when investing.

Bonds generally present less short-term risk and volatility than stocks, but contain interest rate risk (as interest rates raise, bond prices usually fall); issuer default risk; issuer credit risk; liquidity risk; and inflation risk. These effects are usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.

The value of the debt securities may increase or decrease as a result of the following: market fluctuations, increases in interest rates, inability of issuers to repay principal and interest or illiquidity in the debt securities markets; the risk of low rates of return due to reinvestment of securities during periods of falling interest rates or repayment by issuers with higher coupon or interest rates; and/or the risk of low income due to falling interest rates. To the extent that interest rates rise, certain underlying obligations may be paid off substantially slower than originally anticipated and the value of those securities may fall sharply. This may result in a reduction in income from debt securities income.

Increase in real interest rates can cause the price of inflation-protected debt securities to decrease. Interest payments on inflation-protected debt securities can be unpredictable.

Investing in REITs involves certain distinct risks in addition to those risks associated with investing in the real estate industry in general. Equity REITs may be affected by changes in the value of the underlying property owned by the REITs, while mortgage REITs may be affected by the quality of credit extended. REITs are subject to heavy cash flow dependency, default by borrowers and self-liquidation. REITs, especially mortgage REITs, are also subject to interest rate risk (i.e., as interest rates rise, the value of the REIT may decline).

Investing in commodities entails significant risk and is not appropriate for all investors.

Commodities investing entail significant risk as commodity prices can be extremely volatile due to wide range of factors. A few such factors include overall market movements, real or perceived inflationary trends, commodity index volatility, international, economic and political changes, change in interest and currency exchange rates.

The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor.

Past performance is not a reliable indicator of future performance.

Investing involves risk including the risk of loss of principal.

Diversification does not ensure a profit or guarantee against loss.

Asset Allocation is a method of diversification which positions assets among major investment categories. Asset Allocation may be used in an effort to manage risk and enhance returns. It does not, however, guarantee a profit or protect against loss.

The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA’s express written consent.

The trademarks and service marks referenced herein are the property of their respective owners. Third party data providers make no warranties or representations of any kind relating to the accuracy, completeness or timeliness of the data and have no liability for damages of any kind relating to the use of such data.

All information is from SSIM unless otherwise noted and has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy of, nor liability for, decisions based on such information.

The returns on a portfolio of securities which exclude companies that do not meet the portfolio's sustainable strategy criteria may trail the returns on a portfolio of securities which include such companies. A portfolio's sustainable strategy criteria may result in the portfolio investing in industry sectors or securities which underperform the market as a whole.

R-Factor scoring is designed by State Street to reflect certain sustainability factors and does not represent investment performance. Results generated out of the scoring model are based on sustainability dimensions of a scored entity.

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