Figures II-9a and II-9b show our expectations for (or undervaluation) should not, in itself, suggest U.S.-based investor equity returns and our view a short-term action by investors. Time-varying of valuations across developed and emerging portfolio construction should balance risk and markets and factors. Our valuations and return in a utility-based framework and requires forecasting frameworks are intended to set acceptance of model and active risk (Aliaga-Díaz long-term expectations. Therefore, overvaluation et al., 2022). FIGURE II-9 Expected returns are higher, but we still see more opportunities internationally a. Equity market 10-year outlook: Setting reasonable expectations 5th 25th 50th 75th 95th Median percentile percentile percentile percentile percentile volatility U.S. small-cap –2.6% 2.5% 6.1% 9.7% 15.1% 22.9% U.S. value –2.7 2.2 5.7 9.1 14.2 19.8 U.S. REITs –2.6 2.4 5.9 9.4 14.4 20.1 Global ex-U.S. equities 2.2 5.8 8.4 11.0 14.9 18.8 U.S. growth –3.4 1.0 4.1 7.1 11.6 18.6 U.S. equity –1.3 2.8 5.7 8.6 12.9 17.4 U.S. large-cap –1.5 2.7 5.6 8.5 12.8 17.1 Commodities –13.0 –2.9 4.3 11.8 23.4 16.6 Notes: The forecast corresponds to the distribution of 10,000 VCMM simulations for 10-year annualized nominal returns in USD for asset classes highlighted here. Median volatility is the 50th percentile of an asset class’s distribution of annualized standard deviation of returns. Asset class 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. Indexes are unmanaged; therefore, direct investment is not possible. 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. b. Valuations are more attractive than a year ago Undervalued Fairly valued Stretched 0 25 50 75 100% Valuation percentile ƒ m„er in parent‚esis is al atin as … 19% (50%) 32% (78%) 35% (46%) 55% (58%) 57% (7%) 69% (7%) Septem„er †0‡ 2021 Small-cap Emerging Ex-U.S. al e arge-cap ­r€t‚ markets eelpe markets Notes: With the exception of emerging markets and ex-U.S. developed markets, valuations are relative to U.S. equities as the base at the 50th percentile. Growth, value, and small-cap are all based on the percentile rank based on our fair-value model relative to the market. Large-cap valuations are composite valuation measures of the style factor to U.S. relative valuations and the current U.S. cyclically adjusted price/earnings ratio (CAPE) percentile relative to its fair-value CAPE. The ex-U.S. developed markets valuation measure is the market-weighted average of each region’s (Australia, U.K., euro area, Japan, and Canada) valuation percentile. Emerging markets are based on the percentile rank based on our fair-value model relative to the market. Valuation percentiles in parenthesis are as of one year prior. Sources: Vanguard calculations, based on Robert Shiller’s website, at aida.wss.yale.edu/~shiller/data.htm, the U.S. Bureau of Labor Statistics, the Federal Reserve Board, and Refinitiv, as of September 30, 2022, and September 30, 2021. 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 , and September 30, 2021. Results from the model may vary with each use and over time. 46