Strategic asset allocation matters

Vanguard research found that it would take considerably more inflation than we’re expecting to diminish the diversifying power of bonds in a balanced portfolio.

With stocks and bonds well into negative territory, it’s tempting to call the traditional balanced portfolio dead. But we’ve been here before, says Roger Aliaga-Díaz, chief economist for the Americas and head of portfolio construction in Vanguard Investment Strategy Group.

At best, you may marginally improve returns through market timing. At worst, you could drastically lower returns.

In a short video, Vanguard’s global head of portfolio construction contrasts time-varying and tactical asset allocation.

The past year was brutal for the 60/40 portfolio. But it helps to maintain perspective, looking back and forward.

In this excerpt from a January 10, 2023, webcast, Vanguard’s CEO talks about a bellwether asset mix.

Time-varying asset allocation can help build diversified, tax-efficient portfolios, Vanguard researchers say.

A Vanguard white paper looks at ways to tailor portfolios to address specific investor goals and preferences.

With interest rates and inflation expected to rise, the negative stock/bond correlation that supports the diversification properties of a balanced portfolio could also be at risk. In this paper, researchers find that negative correlation will continue and the diversification benefits of a 60% stock/40% bond portfolio will persist.

Vanguard researchers classify the economic and market environment into five states: recession, recovery, expansion, slowdown, and high inflation. This paper discusses the characteristics, valuations, and return expectations of each and concludes that investors willing to take on active risk should adopt a dynamic, state-dependent approach.

Vanguard shares our current views on best practices for U.S. private-sector pension plan asset allocation. We highlight the value of identifying three targets—the return-seeking asset allocation, interest rate hedge ratio, and credit spread hedge ratio—that can be the foundation for a robust, customized portfolio construction process.

Most target-date fund series offer a single post-retirement asset allocation designed to help retirees replace a reasonable portion of pre-retirement income. In this paper, Vanguard researchers offer a framework demonstrating that adding a second asset allocation could support additional goals for those with the resources and desire to pursue them.

A new Vanguard research paper sheds light on how investors’ health state can affect their asset allocation and consumption in retirement.