A previous version of this article misstated the performance of Vanguard Growth ETF since November 8, 2024. It has risen 4%.
Do you and I even need to own U.S. stocks in our retirement portfolios?
And if so, do we need to own the S&P 500 SPX — the benchmark index of large-company stocks that is the bedrock of almost every portfolio?
Those are the shocking questions raised by the recent asset-allocation paper from Vanguard, of all firms.
Not only does the firm reckon that bonds will probably do better than stocks over the next decade, but it expects that U.S. large-company stocks, and especially U.S. large-company growth stocks, will look even worse.
And market developments since Vanguard ran these calculations make the numbers today even more appalling.
It’s especially remarkable that this should come from Vanguard, the investor-owned index-fund giant. The firm and its legendary founder, the late Jack Bogle, are famous for recommending buy-it-and-forget-it, passive, long-term investments in U.S. stocks.
“My view [is] that a U.S.-only equity portfolio will serve the needs of most investors,” Bogle wrote in “The Little Book of Common Sense Investing.” “Buy a fund that holds this all-market portfolio, and hold it forever.” If you want to add some stability, balance it with a low-cost bond index fund, he added. Hence the Vanguard Balanced Index Fund VBAIX, which is 60% invested in the S&P 500 and 40% in a U.S. bond index.
Now look at Vanguard’s latest numbers.
Their “Capital Markets Model Forecast” sees U.S. large-company stocks earning you somewhere between 2.5% and 4.5% a year, on average, for the next decade.
That’s before counting the costs of inflation, which Vanguard sees as averaging 1.9% to 2.9% a year over the same period. (It’s also before any investment fees — and many people are paying about 1% a year.)
So in “real” or constant dollars — in other words, after deducting inflation — Vanguard’s model sees big U.S. stocks earning you somewhere between 2.6% and minus 0.4% a year, on average, over the next decade. That’s enough to turn $1,000 now into … somewhere between $1,300 and $960 by 2035.
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