Advisors and investors split on inflation, bond views

The Federal Reserve’s inflation target is 2%. Most advisors (73%) believe U.S. inflation will hover between 2% and 4% in the coming year. Very few see wild swings: Just 2% of advisors believe it will top 6%, and only 4% expect it to dip below 2%.

Individual investors, on the other hand, aren’t so certain. Half think inflation will top 4% in the next 12 months, and 20% anticipate that prices will increase by more than 6%.

“Advisors are far more optimistic about inflation than investors,” says Xiao Xu, Vanguard investment strategy analyst. “Most advisors expect that inflation will stay in a narrow range near the Fed target, but half of investors are bracing for sticker shock ahead.”

Most advisors expect the 10-year U.S. Treasury note to deliver returns in the 3.5%–4.5% range over the next year, echoing the market consensus forecast. But individual investors are split: Half anticipate returns below 3.5%, while more than a quarter expect returns above 4.5%.

This divergence may reflect deeper concerns about the economic landscape. When asked about future risks, advisors worry most about geopolitical uncertainty (33%) and rising government deficits (24%), with persistent inflation (19%) and a credit downturn (14%) also looming large. Macro shocks and policy missteps that could turn markets on a dime were central to their concerns.

Individual investors, meanwhile, appear more worried than advisors about stagflation and recession. Stagflation would likely push rates higher, while recession would push them lower, which may explain the wide range of expected bond returns among investors.

On average, investors expect GDP to grow just 2.4% over the next year. They put the chances of economic disaster at 8%.¹ These outlooks echo the lows of the early COVID-19 period and 2022’s peak inflation.

“Advisor beliefs seem grounded in consensus economic forecasts and the big picture of macro risks,” said Andy Reed, Vanguard head of behavioral economics research. “But investor views on fixed income are all over the map, reflecting deepening economic anxiety.”

Over the past three years, 41% of advisors boosted their fixed income allocations, while a similar share held their ground. Looking ahead, 63% intend to keep allocations steady, and 26% are planning to add more bonds. This move into fixed income echoes Vanguard’s view on the “return to sound money."

Individual investors tell a different story. Most have kept their fixed income allocations steady over the past three years, and only 8% increased their exposure. “Between investors’ steady expectations and their baseline inertia, we probably won’t see a dramatic change in fixed income allocations in the near future,” Reed said. “But after a decade of strong equity gains and rising fixed income forecasts, it may be a good time for investors to consider rebalancing.”²

The process of rebalancing into fixed income highlights the benefits of working with a financial advisor: These professionals can help investors spot portfolio opportunities, overcome inertia, and rebalance regularly.

The most promising areas in fixed income, according to advisors, include high-yield bonds, investment-grade corporate bonds, municipal bonds, and structured products.

“With rates likely trending lower, advisors’ focus will likely shift toward sectors offering premium returns, signaling a reach for yield as the rate environment evolves,” Xu said.

Vanguard collected advisors’ expectations on fixed income and inflation during the Morningstar Investment Conference in June 2025.

The survey poses seven brief questions about returns on U.S. Treasuries, inflation, and portfolio decisions regarding fixed income to a random sample of more than 100 financial advisors attending the conference. 

Vanguard’s Investor Research & Insights team has been collecting Vanguard investor expectations for U.S. stock market returns and U.S. GDP growth since February 2017. The survey runs every other month, in February, April, June, August, October, and December. A special survey was conducted in March 2020 during the pandemic-induced market crash.

The survey poses 11 brief questions about U.S. stock market, economic growth, and inflation expectations to a random sample of about 2,000 Vanguard personal and 401(k) plan investors. Questions on inflation expectations were added in 2024. It is conducted in partnership with academic researchers Stefano Giglio of the Yale School of Management, Matteo Maggiori of the Graduate School of Business at Stanford University, and Johannes Stroebel of the Stern School of Business at New York University.

The survey respondents are a random sample of U.S.-based Vanguard investors invited by email to participate. About 80% of the sample is drawn from our personal investor clients and about 20% from participants in employer-sponsored defined contribution retirement plans. To be included, investors also must have opted in to receive Vanguard statements by email, be over age 21, and have total Vanguard assets of at least $10,000. Overall, this sample group holds about $2 trillion in assets at Vanguard. We receive responses from investors in each period the survey is conducted.

The responses may be of use to advisors, plan sponsors, researchers, and other investors wishing to gauge current sentiment among individual households and calibrate clients’ thoughts compared with the market.