Vanguard says buy more bonds than stocks over the next decade

Vanguard’s recommended portfolio mix for the next decade is raising eyebrows.

The asset manager now advises investors to allocate 70% of their holdings to bonds and just 30% to stocks — a far more cautious stance than the long-favored 60/40 stock-bond portfolio. The shift reflects Vanguard’s sober view on equities, which it expects to lag government bonds over the coming 10 years.

That outlook echoes warnings from Wall Street’s biggest players. Goldman Sachs’ David Kostin cautioned last October that the S&P 500 has a roughly 72% chance of underperforming bonds and a one-in-three chance of falling short of inflation by 2034. Around the same time, Morgan Stanley’s Mike Wilson told Business Insider he expects flat to negative real returns for the benchmark index over the next decade.

The reasoning boils down to valuations. With the S&P 500’s Shiller price-to-earnings ratio hovering in the high 30s — a level historically linked to poor 10-year returns — Vanguard, Goldman, and Morgan Stanley all see a subdued road ahead for stocks. Past cycles have shown that when valuations are this stretched, long-term equity performance tends to be lackluster at best, and sometimes negative.