When an economic report or political development is different from expectations, markets react. The impulse to reposition a portfolio can be strong. What can be lost in a myopic focus on the moment is that these short-term surprises often wash out with time.

What matters most is longer-term trends. These trends reflect slow-moving forces such as globalization, technology adoption, and demographics. When changes occur—the fall of Communism, the rise of the Internet, and accelerating globalization in the 1990s—they unfold gradually, not in a single headline.

In the decade ahead, the dominant trends will be slower and more balanced economic growth, subdued inflation, and investment returns that fall short of historical averages. Even so, stocks are likely to reward investors with a risk premium; bonds can be expected to diversify stock market risk; and an asset allocation managed with discipline, diversification, and patience is likely to deliver inflation-adjusted returns that can help investors meet their goals.

Source:  Joe Davis, Vanguard