Learn how to navigate today's high-interest-rate world. Vanguard's 2024 market outlook overview can help you determine the right strategy moving forward.
2024's high interest rates: A bumpy road to a brighter future

Interest rates increased dramatically in 2023, and they're not expected to come back down anytime soon. While that means it's more expensive to borrow money, it also means it's more rewarding to save money. This change is ultimately a good thing for the economy, but it can take some time to get used to. As an investor, be sure to read our 2024 outlook. It can help you navigate the road ahead and understand what that might mean for your spending and saving strategies.
Key takeaways from Vanguard's economic and market outlook for 2024
Our projections for the year ahead consider how the interest rate environment will evolve and reveal a few more things to watch out for in 2024, which are highlighted in this article. If you'd like to review the detailed analysis, read the full report: Vanguard economic and market outlook for 2024: Global summary.
You may also visit this page to learn more about the global outlook and gain insight from an interview featuring Joe Davis, Vanguard's global chief economist.
Higher interest rates: Implications for households, businesses, and investors
Today's higher interest rates are a significant development with far-reaching effects on households, businesses, and investors. Here are the key concerns for each group.
Let us help you navigate a world of higher interest rates. Learn more about our personalized advice services.
Monetary policy is expected to tighten
The global economy has shown remarkable resilience in 2023 despite facing numerous challenges, driven by a less-restrictive monetary policy than initially predicted.
Looking ahead to 2024, we anticipate a gradual tightening of monetary policy. This could lead to a mild economic slowdown in the U.S., which is necessary to bring inflation back to target levels. The important thing is to maintain a long-term perspective amid any downturns. Making sudden investment changes based on inflation corrections won't help you achieve your long-term financial goals.
We recommend our clients stick to the time-tested strategies proven to help them achieve the best results. Through our advice services, we can help you see what that long-term perspective will look like on a personal level based on your unique financial situation.
Bonds are back
The bond market has undergone a significant transformation over the past 2 years, reflecting the shift to a new era of higher interest rates. While this transition has led to some volatility, it's a positive development for long-term investors for several reasons:
- Bond valuations are now more attractive, with long-term rates aligning with the higher neutral rate of interest—the rate at which policy is neither expansionary nor contractionary.
- Term premia—the compensation investors require for bearing the risk that interest rates may change over the bond's maturity term—have increased due to inflation concerns and economic uncertainty.
- Long-term bond investors can expect higher returns, ranging from 4.7% to 5.8% annually over the next decade.
- The 60/40 portfolio, a traditional asset allocation strategy, has a stronger probability of achieving its long-term return objectives.
- The prices of investment-grade bonds remain reasonable, but the prices of high-yield bonds are higher.
Overall, the rise of interest rates marks a positive shift toward sound monetary policy, paving the way for long-term economic stability and growth.
Exploring opportunities in smaller markets
Because higher interest rates make it more expensive for companies to borrow money, they generally affect corporate profits and stock prices. As a result, we've lowered our expectations for U.S. stock market returns to 4.6%–6.2% annually over the next 10 years.
However, there are still some equity opportunities for investors. Small-cap stocks and stocks in developing markets are both attractively priced right now. Additionally, we believe the U.S. dollar is overvalued, which means there could be opportunities to invest in foreign stocks.
Overall, we believe investors should take a more defensive approach to investing in the current environment. This means focusing on investments less sensitive to interest rate changes, such as bonds and dividend-paying stocks.
Let's navigate this bumpy road together
While adjusting to the high-interest-rate world, it can be tempting to make impulsive financial decisions based on your emotions. However, a financial advisor can help you stay on track by providing objective advice and helping you make sound decisions. Vanguard's advice services can partner with you to navigate uncertain markets together and help you achieve your financial goals.
Take control of your financial future in a high-interest-rate world. Learn more about our advice services. Give us a call at 800-742-9998.