Vanguard Shares Long-Term Views

The return outlook for broad bond portfolios is muted, though the diversification benefits of bonds should persist despite the tendency for slightly higher interest rates over the next decade.

The long-run outlook for the global stock market is likely to be attractive despite elevated market volatility, below-average growth expectations and near-zero short-term interest rates.

The report concludes: “Balanced-portfolio returns over the next decade have a higher chance of matching their long-run averages than some may think, especially when those returns are adjusted for our outlook of future inflation. In short, the distribution of real returns on a balanced portfolio looks more normal than abnormal.”

 Vanguard adds that, contrary to some suggestions that the next decade warrants a radically new investment strategy, the fund giant is sticking with its long-held view and its principles of portfolio construction remain unchanged, given the expected risk-return trade-off among stocks and bonds.

“Vanguard remains concerned that the volatile environment may lead some investors to retreat from their strategic allocations, while the low-yield environment may lead others to aggressively pursue higher portfolio returns under the allure of higher yields (potentially underestimating the associated risks), higher economic growth (without considering market valuations), or alternative investments (without regard to cost or risk exposure),” said chief economist Joe Davis, in a statement. “Again, Vanguard believes that a balanced and diversified low-cost portfolio remains crucial for the decade ahead.”