An we are looking for ways to better position the future market environment, investors should consider the range of ETF choices available.
In the recent webcast, Bonds as ballast: a renewed dossier for the 60/40, Andrew J. Patterson, Senior Economist, Vanguard; and Matthew Sheridan, investment consultant, Vanguard, looked at current conditions and predicted how markets might move in the future. Strategists pointed to improving conditions with activity in the United States continuing a strong pace in the second quarter, and the economy is expected to continue to accelerate as vaccination efforts increase, which is expected to push more people to engage in normal outdoor activities and find employment. .
Meanwhile, Covid-19’s accommodative measures provided strong support for the rebound, bolstering economies that could eventually translate into more economic activity.
Looking ahead, as Vanguard strategists see an increase in near-term inflation due to pent-up demand coupled with high savings during the Covid-19 pandemic, inflation rates are expected to start to normalize. towards the medium term. They expect the Federal Reserve to take off when the likelihood of meeting or exceeding their goals (KPIs) exceeds the likelihood of not achieving them. Sustained core inflation of 2% or above is expected to take longer than labor market recovery.
“We expect conditions to justify a take-off in US interest rates in 2023,” according to Vanguard.
As we reflect on how to diversify our investment portfolios, analysts at Vanguard have presented various case scenarios. For example, over the next decade, they calculated that a traditional portfolio of 60% stocks and 40% market-cap bonds could generate a median return of 4.09% with a volatility of 9.2. %. In comparison, a more aggressive portfolio of 80% stocks and 20% bonds would generate a median return of 4.79% with a volatility of 12.37%.
Looking at the next 10 years, Vanguard strategists noted that global non-US equities are expected to generate the highest returns in a range of 5.5% to 7.5% with a median volatility of 18.9%. . In comparison, US stocks will generate a return of around 2.6% to 4.6%, with a median volatility of 16.7%.
Meanwhile, looking at fixed income assets over the next 10 years, Vanguard strategists estimated that high yield US corporate bonds could generate the highest yields at 2.2% to 3.2. % with a median volatility of 10.2%, followed by emerging market sovereign bonds at 2.1%. at 3.1% with a median volatility of 9.9%. In comparison, US aggregate bonds could post a return of 1.4% to 2.4% with a median volatility of 4.5%.
To help investors diversify a well-balanced equity and fixed income portfolio, investors can consider bond ETF strategies. Vanguard offers a diverse range of fixed income ETFs in a range of national and international categories, including:
Financial advisers who want to learn more about bond strategies can watch the webcast here on demand.
Learn more at ETFtrends.com.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.