The illustration shows that 10-year annualized returns for a 60% stock/40% bond portfolio over the last decade largely fell within our set of expectations, as informed by the VCMM. Returns for U.S. equities surpassed our expectations, while returns for ex-U.S. equities were lower than we had expected.
The data reinforce our belief in balance and diversification, as discussed in Vanguard’s Principles for Investing Success. We believe that investors should hold a mix of stocks and bonds appropriate for their goals and should diversify these assets broadly, including globally.
You may notice that our long-run forecasts for a diversified 60/40 portfolio haven’t been constant over the last decade, nor have the 60/40 market returns. Both rose toward the end of the decade, or 10 years after markets reached their depths as the global financial crisis was unfolding. Our framework recognized that although economic and financial conditions were poor during the crisis, future returns could be stronger than average. In that sense, our forecasts were appropriate in putting aside the trying emotional strains of the period and focusing on what was reasonable to expect.
Our outlook then was one of cautious optimism, a forecast that proved fairly accurate. Today, financial conditions are quite loose—some might even say exuberant. Our framework forecasts softer returns based on today’s ultralow interest rates and elevated U.S. stock market valuations. That can have important implications for how much we save and what we expect to earn on our investments.