Recently, Vanguard made news, calling for a significant allocation of bonds over stocks.
Like 70% of an investment portfolio in fixed income.
That’s a whole lot of bonds and few stocks.
To be clear, this is in reference to their specific actively managed Time Varying Asset Allocation model “that optimizes for higher expected risk-adjusted returns over the next decade.”1
How has Vanguard done before on forecasts?
Back in 2015, Vanguard’s then CEO, in an interview with CNBC, said the following:
We think stocks are valued at really kind of the highest decile if you look at historical returns and what that suggests to us … over the next decade, stock returns are likely to be a couple hundred basis points below long-term averages.2
He was terribly wrong. The S&P 500 is up on a total return basis 272% since then.
Even Vanguard’s Jack Bogle—one of the greatest proponents of passive stock investing and one of the best things to happen to lower fees for the average person getting in on stock ownership—may have missed it.
At least so far.
In 2018, after running the math on things like dividend yield, earnings growth, and stock valuations, he said,
…you’re talking about a 4 percent nominal return on stocks. And that’s low, lower than history.3
So far, according to this calculator, the average return of the S&P 500 between 2018-2024 has been over 15%.
He still has 2.5 years left for a very significant drop in stocks to get there.
None of this is to rip Vanguard.
To the contrary, for full disclosure, our firm uses some of Vanguard’s funds in our clients’ portfolios.
Who knows? Maybe bonds will be the place to be in the next decade. One never knows the future until it’s here.
It’s not like Vanguard is always wrong. In 2019, Cullen Roche, of Discipline Funds, pointed out that Vanguard’s long-term forecasting “seems to do forecasting fairly well” leading up to that time.4 Though their forecast then of an annual future return of 4-6% for US stocks isn’t looking great now for the same reasons I showed above…
This is simply another reminder that not only is making predictions and forecasting the future based on fancy models and/or arithmetic notoriously challenging, but making investment decisions out of fear from the latest investment forecast may challenge investment returns as well.
Investors should be careful about investing based on smart people’s forecasts.
Investors should focus on foundational investment principles like: how do you handle volatility, what are your income needs, what debt do you have, what amount of time do you have before you need to take money out, and what is the why behind the money you have invested.
I know it’s not as dopamine injected as the headlines that flash across your device or as edge-uh-ma-cated as your favorite investment company or celebrity.
But it’s worth thinking about.
Sometimes the best thing to do after you’ve implemented the basic investment principles is to take the advice of Mr. Bogle himself:
You’ve heard the phrase “Don’t just stand there, do something”? For investors, by far the better advice is “Don’t do something, just stand there.5
What one “stands” on is a consistent investing plan based on tried-and-true investment principles built for your unique situation, not a response to prognostications.
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Sources:
1. “Bonds remain in favor in time-varying portfolip” (July 23, 2025). Accessed online: https://corporate.vanguard.com/content/corporatesite/us/en/corp/vemo/bonds-remain-favor-time-varying-model-portfolio.html
2. “Stock Market Highly Valued: Vanguard CEO” (May 7, 2015). Accessed online: https://www.cnbc.com/2015/05/07/stock-market-highly-valued-vanguard-ceo.html
3. Jack Bogle believes the stock market will return only 4% annually over the next decade” (March 22, 2017). Accessed online: https://www.cnbc.com/2017/03/22/jack-bogle-believes-the-stock-market-will-return-only-4-annually-over-the-next-decade.html
4. “Is Vanguard Better at Predicting Future Returns” (May 23, 2019). Accessed online: https://www.pragcap.com/is-vanguard-better-at-predicting-future-returns/
5. “Jack Bogle’s Simple Advice for Investors” (January 17, 2019). Accessed online: https://www.aarp.org/money/retirement/financial-advice-jack-bogle//