Global equity markets: Normalizing Figures II-8a and II-8b show that the global sell-off return outlook is bringing U.S. returns closer to our forecasts The sell-off in equity markets this year has been from 10 years ago but that international equities indiscriminate. U.S., developed ex-U.S., and have continued to underperform our expectations. emerging-market equity indexes have all posted Although discrepancies exist at the regional level, losses greater than 20% in the last nine months. our forecast 10 years ago for global equities has 11 Valuation declines were more pronounced in proved accurate. This underscores the challenges U.S. markets, but a strengthening dollar meant investors face when tilting their portfolio heavily U.S.-based investors realized larger losses on in one direction, and it highlights the benefits of their unhedged international equity exposures global diversification. than on their local ones. Even though this is negative from a short-term, realized-return perspective, it means that the global opportunity set is now more attractive than it was a year ago. FIGURE II-8 Investors are reassessing their rosy view of equities, which is pushing our return outlook higher a. U.S. equities are falling back toward our forecast b. International equities have continued to lag from a decade ago expectations from a decade prior 10-year annualized returns 10-year annualized returns % %    %        %                   Interquartile range Actual return Median expectation Notes: Figure II-8a shows the actual 10-year annualized return for U.S. equities compared with the VCMM forecast made 10 years earlier. Figure II-8b shows the actual 10-year annualized return for international equities compared with the VCMM forecast made 10 years earlier. For example, the 2011 data point at the beginning of each chart shows the actual return for the 10-year period 2001–2011 (solid line) compared with the 10-year return forecast made in 2001 (dotted line). After 2022, the dotted line is extended to show how our forecasts made between 2013 and 2022 (ending between 2023 and 2032) are evolving. The interquartile range represents the area between the 25th and 75th percentile of the return distribution. See the Appendix section titled “Indexes for VCMM simulations” for further details on asset classes. Source: Vanguard calculations, as of September 30, 2022. 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 modeled asset class. Simulations as of September 30, 2022. Results from the model may vary with each use and over time. Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index. 11 Our median forecast for a market-cap-weighted portfolio of U.S. and international equities for the 10-year period from September 30, 2012, to September 30, 2022, was 7.6% per year, and the same portfolio returned 8% over that period. 45