Why Vanguard Thinks More Bonds Could Boost Future Returns

Ever thought about investing more in bonds to boost future returns? Vanguard is suggesting just that. They've created a model portfolio that leans heavily on fixed income, with about 60% in bonds and 40% in stocks. This is different from the typical 60/40 portfolio. Why? Vanguard believes higher bond yields can provide a safety net against rising interest rates. The 10-year Treasury yield has been climbing, recently hitting 4. 8%. Vanguard's portfolio focuses on U. S. credit and long-term bonds. They think these can offer good returns over the next decade. The portfolio uses a method called time-varying asset allocation, based on Vanguard's 10-year forecasts.

In this portfolio, stocks take a backseat. Large-cap growth stocks are expensive and might not do well over the next decade. Instead, Vanguard's portfolio is loaded with value and small-cap stocks, as well as developed market equities. For fixed income, it's big on U. S. investment-grade corporate bonds and long-term Treasurys. Vanguard thinks corporate bonds might outperform government bonds over the long term. Longer-dated bonds can offer a term premium, which means extra rewards for taking on more risk. You don't have to ditch your 60/40 portfolio. Vanguard's 40/60 strategy is just one of 13 they offer. It's for investors with a bit more risk tolerance, who want better returns with less risk.

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