Returns for stocks and bonds

Overview

Part 1 sets the 6% nominal return objective and provides some estimates that make this seem realistic. But returns deserve more attention. This post is about expected returns (history + current market-implied estimates); it is not an ironclad prediction. Useful as a sanity check on the estimates in part 1 and as background for anyone tempted to tilt the portfolio regionally.

There are many sources available, but for me, two stand out. One is the summary of the Global Investment Returns Yearbook 2026. The full version is only available to UBS clients. But the summary by itself is excellent. The other is Trading Economics. Even without a subscription, they have so much data available. Probably the first site I open on a weekday. I will provide important sources at the end.

In this post, first we take a look at equity returns and place them in a historic context. Then we take a look at bonds with a focus on the present.

A short section on Asia and emerging markets precedes the standard “My takeaways” section.

Stocks

Eurozone

Long-run nominal returns are roughly between 7% and 9%, real returns between 4% and 5%. If you conclude that the Eurozone probably finds it hard to keep inflation around 2%, you would be right. These long-run returns would look better if it weren’t for two reasons: Germany and Austria were wiped out twice by hyperinflation and war, and Italy by repeated currency/sovereign crises.

Over the last decade or so, elevated Eurozone yields push the estimate to roughly 5% to 6% real, which breaks a long historical pattern. Is this the start of a new pattern? Unclear. But there seems to be a shift. Germany is no longer the undisputed king of the Eurozone, and countries like Spain and Italy are catching up with the north.

Non-Eurozone Europe

The most important countries here are the UK and Switzerland. Big economies with lots of good companies. For me, one of the primary reasons to invest in Europe and not just in the Eurozone. Of course, the Nordic countries Sweden, Norway and Denmark should not be ignored but simply do not carry the same weight as the UK and Switzerland.

Sweden and Denmark are in the European Union, and the other mentioned countries also have tight connections to the Eurozone. Real returns seem to be comparable to the Eurozone. Interestingly, Switzerland seems to be on the low side and the UK on the high side.

For me, adding Non-Eurozone Europe to the Eurozone makes a lot of sense. I do get less Euro exposure, but I gain a lot in diversity by adding strong countries in the same economic zone.

US comparison

Compared to Europe the US has some real advantages. Some important ones that are often mentioned:

• It was never invaded and never had hyperinflation
• Its stock markets have a tech-heavy index composition at a very good time
• The USD is the reserve-currency of the world
• The important commodities gold and oil are priced in USD
• It is the world’s largest economy by a margin

These advantages show up in the numbers. Mostly in the size of the US market, but also in the returns.

For the US an 8.5% to 9% nominal return seems the consensus and a 5.5 to 6.0% real return. So a big difference in nominal return but not so big in real return. And consistently, US inflation, interest rates and bond rates are higher than in Europe. Still, the US clearly has the better track record.

Now, take a look at the present.

US stocks trade at historically high valuations. The S&P 500 Shiller CAPE is (July 2026) ~41 vs. its long-run average of ~17. If you look at that chart and try to find a comparable peak, you land around the year 2000. Hmm. European markets trade much closer to their historical averages.

So, history favours the US, valuations favour Europe. Who will do better in the next decade? Two key questions here:

1. Will the US slide back to lower valuations, or will its dynamic, tech-driven economy keep its current dominance going?
2. What will happen to the USD that faces more challenges than ever before?

Some major asset managers (such as Vanguard and J.P. Morgan) project that European equities will match or slightly outperform US equities over the next 10-15 years. Their reasoning seems logical. Because US stocks start from such high initial valuations, future multiple expansion is limited, whereas European stocks start from historically cheap levels with strong baseline dividend yields.

So they believe they know the answer to the first question. I do not have their confidence when it comes to predicting the future, but I do see risks in the US that I never saw before. My only weapon is underweighting the US in my portfolio and controlling USD exposure.

Bonds

One caveat before the numbers: these are current market yields, not locked-in returns. If yields rise from here, bond prices fall, and that can eat into or exceed the yield over your holding period, especially for longer-duration government and corporate bonds. The ultra-short end is less exposed to this.

Eurozone government and corporate

For government bonds it currently (July 2026) is a depressing picture. Real returns are close to 0%. You can still find some outliers. Italy offers a real return of 1%, but this is compensation for credit risk rather than free extra return.

Euro investment-grade corporate bonds yield between 3.0% and 4.5% at the start, so a 1% to 1.5% real return is perfectly feasible.

Non-Eurozone Europe

UK gilts offer a whopping 5.0% yield, but inflation is running hot above 3%. Real return may be between 1.2% and 2.2%. Not bad, but the problems the UK are having with inflation are a problem, and of course, this is GBP.

If you want a return on your bonds, do not go to Switzerland. If you want to store money in a safe place by using a bond, then yes.

By the way, the differences in inflation numbers across Europe are huge - all over the map. The Visual Capitalist has this nice graphic. Quite literally, all over the map.

US comparison

Right now (July 2026) the benchmark US 10y Treasury is 4.75%. Inflation is around 3.5%, so the real yield is around 1%. Sounds better than Europe, but of course, this is in USD. A 1% swing in the EURUSD-pair could wipe out your returns or double them. So, risky.

US investment-grade corporates are around 4.80%. Credit spreads are historically tight right now. They are only a fraction above treasuries.

So, for bonds the difference between Europe and the US is not as pronounced as it is with stocks.

Asia and emerging markets

Unlike Europe-vs-US, I cannot see or find a clear regional trend to report for Asia and emerging markets. The bloc mixes structurally different economies under one label. Very different economies.

• China’s state-driven economy keeps delivering technical innovations that rival those of the US. However, the aging population is a problem, and not all sectors of the economy do well.
• India has high-growth, favourable demographics but an expensive stock market. Can they realise their potential?
• South Korea and Taiwan are tech-cyclical and export-driven. Both are dominated by just a couple of corporations.
• Brazil is a top-10 global economy by GDP and the second-largest in the Americas. At the same time, enormous public debt.
• What about the oil-producing countries in the Persian Gulf? Crucial for the world but in a volatile region of the world.
• Not even mentioning Japan and Australia, big economies in their own right.

And yet in spite of not being a single bloc, I think this is where the growth is. Growth, at the expense of Europe and the US. Much better demographics, increasing domestic demand, critical minerals control and a higher return on capital. So, overweight Asia and emerging markets.

Here are some numbers for emerging markets. J.P. Morgan’s 2026 long-term capital market assumptions put EM equities at roughly 7.8% nominal (USD) over a 10-15 year horizon, below the ~8.5-9% I quote for the US above.

That gap undersells the case for me: the US number leans on already-stretched valuations holding up, the EM number leans on structural growth from a much cheaper starting point. Almost 8% sounds great to me.

On the bond side, hard-currency EM sovereign debt yields roughly 6% to 7% right now - the iShares J.P. Morgan USD Emerging Markets Bond ETF showed a yield to maturity of 6.16% as of July 2026, while VanEck puts the broader EM bond yield at 6.9%. Either way, that’s a big spread over US Treasuries. That gap is compensation for credit and political risk, and local-currency EM debt adds currency risk on top. A EUR investor should seize EM currency exposure deliberately, not just chase the yield.

My takeaways

• Because I see risks in the US and opportunities in Asia and emerging markets, I chose a different regional allocation than the MSCI World offers: underweight US and overweight Asia and emerging markets. And because I need EUR exposure, I end up overweight Europe as well (at the expense of the US).
• Rough sanity check against the 6% nominal target from Part 1: 44% US at ~8.5-9%, and the overweight Europe and Asia/EM sleeves both estimated in the high-single digits nominal, blends comfortably above 6% and compensates for my lower-yielding assets, even before discounting for the uncertainty baked into every one of these estimates.
• Longer US and European bonds are not very attractive to me. The ultra-short ones are only useful to store money; don’t expect too much from the returns. I think the 6% to 7% hard-currency EM bond yield is worth the risk for longer bonds, currency exposure sized deliberately.
• My current weight for the US is around 44% compared to 63% in MSCI ACWI and 62% in the FTSE All-World Index. If I look at the valuations in the US, I even feel a bit nervous about the 44%. In addition, the concentration risks are real. Then again, the US economy has always shown enormous resilience, and I cannot ignore it. I am reluctantly satisfied with my 44%.