Vanguard is singing a new tune for investors in 2026.
It goes like this: Out with the standard portfolio mix of 60% equity and 40% fixed income. In with the opposite — a 40% equity share (20% US stocks and 20% international stocks) and 60% fixed income.
“This is a significant shift,” Roger Aliaga-Diaz, Vanguard’s global head of portfolio construction and chief economist for the Americas, told me. “It’s almost like a tectonic shift.”
Here’s what’s behind it.
Vanguard expects investors in the short term to realize returns from high-quality (both taxable and municipal) US and foreign bonds similar to the performance they would see from US equities — about 4% to 5% — but with lower risk.
Aliaga-Diaz also expects non-US equities to outperform US stocks over the next decade. Vanguard’s outlook for international stocks is 5.1% to 7.1% per year over the next 10 years, higher than US stocks.
“This is a position we suggest investors consider for the next three to five years, but it depends on risk tolerance and time horizon,” Aliaga-Diaz said.
Vanguard’s new advice is for investors with a “medium-term” outlook, and it stems from growing fears — at Vanguard and elsewhere — about an AI bubble.
The “Magnificent Seven” — Apple (AAPL), Alphabet (GOOGL, GOOG), Microsoft (MSFT), Amazon (AMZN), Meta (META), Tesla (TSLA), and Nvidia (NVDA) — are the linchpin for the S&P 500’s growth these days. The S&P 500 index rose about 17% for the year, after a 23% gain in 2024. But analysts are increasingly concerned that they’re overvalued.
“We see that overvaluation of equity markets more as a risk to the investor than as opportunity,” Aliaga-Diaz said. “Importantly, US fixed income should also provide diversification if AI disappoints and fails to usher in higher economic growth—a scenario with odds that we calculate to be 25%–30%.”
Many retirement savers, however, may be saving for longer — say, to retire in two decades or more.
How does Vanguard’s new formula apply to them?
I talked to several retirement experts about whether it’s a good idea to change course.
“Given today’s high equity valuations and higher bond yields, I certainly think it’s reasonable that a more conservative portfolio may have a better risk-return profile for the coming decade than in years’ past,” Tyson Sprick, a certified financial planner with Caliber Wealth Management in Overland Park, Kan., told me.
“Overall, I think this reinforces the value of diversification and should serve as a warning to investors having FOMO with regards to this year’s AI-driven returns,” he said.
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