Why this superconservative strategy is proving controversial — and how Vanguard is defending it

Vanguard is liking the odds of returns for bonds over stocks in the next decade. - Getty Images

About a month ago, the world’s second-biggest money manager ruffled feathers by suggesting investors turn the traditional 60/40 stocks-to-bonds set-up on its head.

Vanguard, which manages $10.2 trillion in assets, announced that one of its strategies would now recommend a 70/30 bonds-to-stocks split. One critic on X went so far as to call that the “Great American Poverty” portfolio, while others envisaged potential retirees ravaged by inflation — the sworn enemy of fixed income:

Most Read from MarketWatch

Forget about Fed rate cuts for a second — and worry about how markets are running so low on extra cash We’re in our 70s and have $1.4 million. We pay $1,750 in rent. Will we run out of money in retirement? My friend, 61, signed a $20K contract for dental implants. She can’t afford it. Can she fight it? I am a 65-year-old single woman with 25 credit cards. How do I cancel them without hurting my credit score?-

In the hot seat with our call of the day is Vanguard’s senior investment strategist Todd Schlanger, who explains that shift and why stocks may be the weaker bet over the next decade.

For starters, Schlanger says the 70/30 advice is in one of 13 strategies — the long-term time-varying asset allocation portfolio (TVAA) — which keep allocations unchanged over time. The stock side of that was at 38% in March, he said.

“What we were trying to do with this strategy is really identify the risk tolerance that an investor in a 60/40 portfolio would have in more or less normal market conditions,” he told MarketWatch in an interview Wednesday.

To get to 70/30, they first applied that risk tolerance to the current market environment, with a forecast of “more or less normal rates of return” for fixed income but elevated valuations for the U.S. and global stocks.

“You end up with a situation where our models would imply only taking on 30% equity risk instead of 60% and the remainder in fixed income,” said Schlanger.Vanguard calculations, as of June 30, 2025. -

The equity side of it emphasizes some underdogs. “This particular strategy is tilted more towards value stocks, which are much more attractively priced than growth stocks, given the runup we’ve seen in the Mag 7,” he said, referring to the seven tech giants led by Nvidia.

MarketWatch Live: How huge is Nvidia’s market cap? Equal to 6 Walmarts …

That’s as Vanguard also believes that AI growth has been transformative, but for some U.S. companies stocks “priced to perfection,” he said. Small caps and developed non-U.S. stocks are also a feature of that strategy shift. Those three areas offer “much more attractive valuation,” and expectations for higher returns, he said.

Story Continues

Vanguard’s expected 10-year annualized return on that 70/30 strategy is 5.5%, versus 5.2% for the benchmark 60/40 strategy. Expectations for annualized volatility are 5.9% versus 9.2%, respectively.

Schlanger said by following this time-bearing strategy, investors should almost expect it to underperform in the short run, because of the potential for strong momentum in markets and a difficulty in figuring out what would cause that to change.

“Part of the decision and the magnitude by which an investor might want to de-risk their portfolio would be their tolerance for underperformance should the momentum in the market continue,” he said.

Schlanger said the strategy is not just about trying to earn excess returns, but managing risk. “That’s why when you have very comparable rates of returns in equities and fixed income over the next decade, according to our forecasts, it just makes sense to overweight the asset class with less volatility and less potential for drawdown,” he said.

“In this particular strategy the investor is trying to maximize the risk/return trade off, and again, when you have very comparable rates for equities and bonds, overweighting the less volatile asset class and also making the tilts towards more attractively valued-priced equities makes a lot of sense,” he said.

The markets

U.S. stocks DJIA COMP are mostly higher to start, with the S&P 500 SPX in record territory. Yields on 10- and 30-year Treasury bonds BX:TMUBMUSD10Y BX:TMUBMUSD30Y are mostly steady. The dollar DXY is under pressure.

Key asset performance Last 5d 1m YTD 1y S&P 500 6481.4 1.34% 1.86% 10.20% 15.90% Nasdaq Composite 21,590.14 1.97% 2.18% 11.80% 22.98% 10-year Treasury 4.228 -10.20 -14.70 -34.80 36.30 Gold 3443.9 1.52% 3.49% 30.49% 35.64% Oil 63.52 1.08% -9.64% -11.62% -14.60% Data: MarketWatch. Treasury yields change expressed in basis points

Need to Know starts early and is updated until the opening bell, but to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.

The buzz

Nvidia NVDA results beat expectations overall, but its data-center business disappointed and the AI chip maker gave a tepid forecast for the current quarter. Shares are down around 2%.

Dollar General stock DG is jumping on an earnings beat and higher guidance, as the discount retailer says it’s nailing “value” for customers.

Snowflake’s SNOW AI data platform credentials got a boost and shares are jumping on forecast-beating results and an upbeat outlook.

NetApp stock NTAP is down after the data-storage company reported lower profit. HP shares HPQ edged lower although the PC maker reported in-line earnings and solid demand for AI-powered products.

Weekly jobless claims fell by 5,000 to 229,000, pulling back from a two-month high. Second-quarter gross domestic product was revised up slightly to 3.3%. Pending-home sales are due at 10 a.m.

Warren Buffett’s Berkshire Hathaway BRK.B boosted stakes in Japanese trading houses Mitsubishi JP:8058 and Mitsui JP:8031.

Best of the web

Record levels of margin debt aren’t a red flag but long-term inflation is, says this fund manager.

Trump fires board member of regulator weighing rail merger.

Teacher salaries start at $100,000 at Bill Ackman’s AI-focused Alpha School.

The chart- @deedydas

Deedy Das, principal at venture-capital firm Menlo Ventures, offers this chart via his X account, showing how TikTok owner ByteDance has just eclipsed Meta META when it comes to revenue. ByteDance has reportedly planned a new employee share buyback plan, valuing it at more than $330 billion. Meta’s market cap was $1.88 trillion as of Wednesday’s close.

Top tickers

These were the top-searched stock-market tickers on MarketWatch as of 6 a.m.:

Ticker Security name NVDA Nvidia TSLA Tesla PLTR Palantir NIO NIO OPEN Opendoor AMD Advanced Micro Devices AAPL Apple TSM Taiwan Semiconductor Manufacturing TLRY Tilray Brands AMZN Amazon

Random reads

Meet the ‘punk rock’ dinosaur.

Behind a one-in-a-million, viral tennis photo.

4.8 hours of sunshine. Calculating the perfect vacation.

Most Read from MarketWatch

Yes, rate cuts will be good for stocks. But the Fed would be stimulating an economy that doesn’t need it. Medicare Advantage brokers could now focus more on making money and on commercials than on your healthcare My husband and I are giving my sister $30K each year. Will we owe the IRS gift tax?

View Comments