The last century was great for U.S. stocks, but the next decade might be challenging, says investing chief

It's been a strong century for the stock market.

From 1926 through 2025, the weighted return on all common stocks averaged 10.1% per year, according to research from Hendrik Bessembinder, a professor at the Carey School of Business at Arizona State University.

That's well ahead of the 3.3% investors could have earned in Treasurys — bonds backed by the U.S. government that are considered virtually risk-free — according to Bessembinder, as well as the roughly 3% annual rate of inflation over that period.

But investing is a forward-looking game. For those hoping to build wealth, what's happened over the past 100 years isn't nearly as important as what might happen going forward. And some experts believe U.S. stocks may deliver less-than-stellar returns in the next decade.

"Our view is that the S&P 500, which is very dominated by just a handful of names, looks increasingly challenged for future long-term returns," says Que Nguyen, chief investment officer of equity strategies at investing firm Research Affiliates. Citing factors such as stock valuations and market concentration, the firm projects an annualized return of just over 3% for the index, considered a proxy for the broad U.S. stock market, over the next 10 years.

For those with a short time horizon — such as folks looking retire in the next decade or so — that could be a big deal. And even for people who have longer to invest, Nguyen says, the current makeup of the market is a good reason to re-examine how their portfolio is constructed.

Even if you agree that the market is in for a rough decade — and no market expert knows for certain how stocks will behave — that doesn't mean that you should abandon U.S. stocks altogether, experts say.

That's especially true if you're saving for long-term goals, such as retirement, that may be decades away, says Sam Stovall, chief investment strategist at independent investment research firm CFRA. Over long periods, "you should be in stocks, period, if you want to outpace inflation and taxes," he says.

But for those keeping an eye on the market over the shorter term, there are a few trends worth noting, Nguyen says.

One is valuation — investor-speak for whether stocks are trading above or below their fair value. Generally, investors are willing to pay more for a piece of a company if they believe that firm will grow in the future. Investing pros determine the price tag by comparing the stock's price to its underlying fundamentals, such as earnings, sales or cash flows.  

The more an investment gets bid up in anticipation of future results, the higher a bar that stock must clear to keep up with investor expectations. And right now, particularly among the stocks leading the U.S. market, the bar is high, says Nguyen.

"Not only are valuations at cyclical highs, the earnings and the cash flows on which those valuations are based also seem to be at cyclical highs," she says. "So it will be harder and harder for [U.S. stocks] to deliver the kind of returns they have delivered over the last 10 years."

Indeed, by one measure, which compares stock prices to inflation-adjusted earnings, stocks in the S&P 500 are trading at a 42% premium to their 30-year average, according to research from JPMorgan.

Another concern for investors, particularly in the S&P 500, is concentration, Nguyen says. As of late, stellar returns among the so-called "Magnificent Seven" mega-sized tech stocks have driven returns in the market, and as a result, currently dominate the S&P 500. Shares of Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla currently account for nearly 35% of the index.

Going forward, Nguyen says, a pullback in a few names or sectors could significantly dampen overall returns.

"You're increasingly getting exposed to a very narrow set of stocks that have a very narrow economic path," she says. "I want to be broadly diversified. But ultimately, you're basically putting all of your eggs in one basket. Or seven baskets."

If you're primarily invested in a market-cap weighted index, such as the S&P 500, it could be worth discussing the idea of branching out with your financial professional, Nguyen says. That may mean exploring smaller firms as well international names from developed and emerging markets.

Research Affiliates projects an 8% annualized return among non-U.S. companies over the next 10 years, compared with a 3% return in the S&P 500. "It's a great time to be thinking about diversifying globally," Nguyen says.

It may also be worth investing in diversified strategies that take a different approach to weighting holdings, Stovall says. From 1990 through 2025, a version of the S&P 500 with all constituents weighted equally delivered an annual return of 9%, compared with an 8.6% return in the traditional S&P, according to CFRA.

"You actually got a bigger bang for your buck by being more diversified," Stovall says.

Bessembinder's research indicates that, historically, investors have been rewarded for casting a wide net. In his analysis of some 30,000 stocks, he found that just 46 names had driven about half the market's returns over the past 100 years.

Even if you believe that over the course of your time as an investor, companies investing in AI will continue to drive markets upward, it's virtually impossible to know which relatively few stocks will ultimately be the big winners, Nguyen says.

"Not everything is going to have a positive return, because not everything ever does," she says. "But, because it's hard to pick, you want to be broadly diversified."

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