Vanguard's Economic and Market Overview
Our 60/40 time-varying portfolio allocation remains cautious
on risk assets despite first quarter sell-off
Steady state
0
36% U.S. equities
24% International equities
28% U.S. bonds
12% International bonds
5.2% Annualized returns
9.8% Annualized volatility
0.26 Annualized Sharpe ratio
May 2020
30% U.S. equities
45% International equities
15% U.S. bonds
10% International bonds
5.8% Annualized returns
12.5% Annualized volatility
0.27 Annualized Sharpe ratio
May 2021
0
22%
U.S. equities
33% International equities
27% U.S. bonds
18% International bonds
Projected portfolio statistics
5.4% Annualized returns
9.1% Annualized volatility
0.29 Annualized Sharpe ratio
May 2022
C
19% U.S. equities
28% International equities
32% U.S. bonds
21% International bonds
5.2% Annualized returns
7.8% Annualized volatility
0.30 Annualized Sharpe ratio
IMPORTANT: The projections and other information generated by the VCMM regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of
future results. Distribution of return outcomes from VCMM are derived from 10,000 simulations for each modeled asset class. Simulations as of May 31, 2020; May 31, 2021; and May 31, 2022. Results from the model may vary
with each use and over time. For more information, please see the "Important information" section.
Notes: The charts show the optimal allocation to U.S. and international stocks and bonds for a hypothetical investor looking to maximize risk-adjusted returns. Allocations are based on the VCMM forecast at the end of that month, which takes
into consideration initial market and economic conditions at that point in time and produces a forecast for the subsequent 10 years. Optimization is done using the Vanguard Asset Allocation Model (VAAM), which aims to capture the traditional
risk/return trade-offs for beta, factors, and alpha with investors' attitudes toward those risks. The Sharpe ratio is a measure of return above the risk-free rate that adjusts for volatility. A higher Sharpe ratio indicates a higher expected risk-adjusted
return. The "benchmark" portfolio is a standard 60/40 stock/bond portfolio with equity home country bias of 60% and bond home country bias of 70%. Home country bias is the percentage of assets in the portfolio that are from a given investor's
region (in this case, U.S. securities for a U.S. investor). U.S. equities are represented by the Dow Jones U.S. Total Stock Market Index (formerly known as the Dow Jones Wilshire 5000) through April 22, 2005; the MSCI US Broad Market Index
through June 2, 2013; and the CRSP US Total Market Index thereafter. International equities are represented by the Total International Composite Index through August 31, 2006; the MSCI EAFE + Emerging Markets Index through December
15, 2010; the MSCI ACWI ex USA IMI Index through June 2, 2013; and the FTSE Global All Cap ex US Index thereafter. International bonds are represented by the Bloomberg Global Aggregate Index ex USD, and U.S. bonds are represented
by the Bloomberg U.S. Aggregate Bond Index. Portfolio weights may not total 100% because of rounding.
Source: Vanguard calculations, based on data as of May 31, 2020; May 31, 2021; and May 31, 2022.
For institutional use only. Not for distribution to retail investors.
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