Financial wellness
February 14, 2024
The start of the year is a great time to get aware of and aligned with the four Vanguard-recommended principles for investment success. Our principles focus on the things within your control, so you can create an actionable plan that takes you closer to your goals, one step at a time.
Notes: This hypothetical illustration does not represent the return on any particular investment, and the rate of return is not guaranteed. The calculation for the contribution of savings and investment returns was determined as follows: Assuming a fixed 4% real return over inflation and equal annual contributions, we calculated how much an investor needs to invest annually to achieve a given investment goal for different time horizons, varying from 0 years (when investment begins) to 40 years after investment begins. Savings represent the amount invested (the principal). Contributions (in real terms) are assumed to be the same every year relative to the year investing begins.
Source: Vanguard.
Top 5%, bottom 5%, and average annual returns for various global stock/global bond allocations, 1901–2022.
Notes: Data are from Dimson-Marsh-Staunton (DMS) dataset for 1901–2022. Annualized nominal geometric returns are in dark green. The 5th and 95th percentiles are plotted below and above asset mixes. Bar length indicates the range, from 5th to 95th percentile, of annual returns for each allocation; the longer the bar, the larger the variability. The numbers next to each bar represent the average nominal annual returns for that allocation for the 122 years covered.
Sources: Vanguard calculations, using DMS global returns data from Morningstar, Inc. (the DMS World Equity Index and the DMS World Bond Index, both in nominal and real terms). The dataset includes returns from Australia, Austria, Belgium, Canada, China, Denmark, Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Russia, South Africa, Spain, Sweden, Switzerland, the United Kingdom, and the United States.
Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.
Assuming a starting balance of $100,000 and a yearly return of 6%, which is reinvested. Costs may include both taxes and investment costs like expense ratios, transaction costs, and sales charges.
Notes: The portfolio balances shown are hypothetical and do not reflect any particular investment. In this example, the accounts return 6% annually, then investment costs are taken at the end of the year. The rate of return is not guaranteed. The final account balances do not reflect any taxes or penalties that might be due upon distribution. Costs are one factor that can impact returns. There may be differences between products that must be considered prior to investing.
Source: Vanguard calculations.
Chart shows years needed to reach $500,000 using different contribution rates and market returns. All scenarios assume an initial contribution of $10,000 and annual contributions of $5,000 to start.
Notes: Each scenario starts with an initial contribution of $10,000 made in Year 1, with the first annual contribution of $5,000 made in Year 2. The portfolio balances shown are hypothetical and do not reflect any particular investment. There is no guarantee that investors will be able to achieve similar rates of return. The final account balances do not reflect any taxes or penalties that might be due upon distribution.
Source: Vanguard.
All investing is subject to risk, including the possible loss of the money you invest. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account.
There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.
Investments in bonds are subject to interest rate, credit, and inflation risk.
Diversification does not ensure a profit or protect against a loss.
We recommend that you consult a tax or financial advisor about your individual situation.
Vanguard’s Principles for Investing Success is a body of research that intends to capture important and evergreen considerations for investors across regions and with a robust view of the markets. To capture evergreen consideration, Vanguard selected the Dimson-Marsh-Staunton dataset to further this research because it provides a long-time series on annual returns on stocks, bonds, bills, inflation and currencies for 35 markets. Of the 35 markets covered, 23 (the DMS 23) have 124-year histories from 1900 to 2023. The remaining 12 markets have start dates in the second half of the 20th century, with either close to or more than 50 years of data. Together with the DMS 23, these make up the DMS 35. Vanguard believes the unrivalled breadth and quality of its underlying data as a global authority on long-run asset performance.
Contemporaneous data for several well-known US and ex-US indices (S&P500, Bloomberg Agg, MSCI ex-US and Bloomberg Global ex-US) is only available going back to 2000. The last 25 years was a period of lower interest rates, which may not offer a full picture of the role of stocks and bonds in a portfolio. DMS offers a longer time series of data and a global view.