International equities: ahead. Our outlook is positive for international More value with less growth equities despite our view that the U.S. will have U.S. equities have outperformed their global higher earnings growth, though we may need peers by a very wide margin over the last decade. to see a weaker dollar for international On a cumulative return basis, a portfolio of U.S. outperformance to be sustained. stocks bought in 2012 is worth twice as much as a portfolio of international stocks bought in the Figure II-13 shows our outlook for U.S. and same period. Although many reasons have been international equities and a breakdown of the cited for this outperformance—stronger U.S. expected total return difference for the decade growth, a less uncertain economic environment, ahead. Although the valuations gap has narrowed and the sector composition of the U.S. market— since last year, we expect more favorable our framework focuses on the durable sources of international valuations, higher dividend payout outperformance. To that end, we believe that ratios, and a weaker dollar to drive international the valuation-based expansion in U.S. equities is outperformance. sowing the seeds for lower returns in the decade FIGURE II-13 Since relative valuations have improved, a weaker dollar is becoming a more important driver of expected international outperformance Annualized return .% .% .% –.„% .% .% MSCI USA Valuation arning iien ­oreign€ MSCI ACƒI return change groth iel e‚change e‚ USA return (– ) return (– ) Foreign- Foreign- Valuation Earnings Dividend exchange change growth yield return Total return MSCI USA Index –1.18% 5.0% 1.9% — 5.7% MSCI ACWI ex USA Index –0.27% 4.3% 3.3% 1.2% 8.5% Notes: Forward-looking return estimates are from the VCMM, as of September 30, 2022, for the period October 1, 2022, through September 30, 2032. The U.S. equity return is represented by the MSCI USA Index return; the international equity return is represented by the MSCI ACWI ex USA Index return. Returns do not take into account management fees and expenses, nor do they reflect the effect of taxes. Returns do reflect reinvestment of dividends and capital gains. The two end bars representing U.S. and international expected returns are median expectations. As a result, this comparison does not account for the correlation between U.S. and international equities. The sum of the individual bars in the middle may not equal the difference between the two end bars because of rounding. Sources: Vanguard calculations, based on data from Refinitiv and Global Financial Data, 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. 51