True diversification calls for a global outlook

When stocks and bonds underperform—especially at the same time—you might think there's nowhere to hide. But if you're in it for the long term, hiding or staying on the sidelines is the wrong response. Participation may be a better one. Yet picking the right countries, sectors, and securities (and getting the timing right) is virtually impossible to do consistently.

That's where consistent global diversification comes in, and that's why Vanguard model portfolios allocate a consistent percentage of stocks (40%) and bonds (30%) to opportunities outside the U.S.

What's behind Vanguard's conviction that long-term global allocations can lead to successful investing?

• Our positive outlook for non-U.S. markets.
• The higher dividend yields historically available in global investing.

In addition, non-U.S. allocations have historically reduced overall portfolio volatility—not to mention the difficulty of predicting whether U.S. or non-U.S. markets will outperform in any given year.

Our positive international outlook

Current valuations alone suggest that the long period of U.S. equities' outperformance may be coming to a close. That's why Vanguard has increased its 10-year forecast returns for both U.S. and non-U.S. stocks and bonds, with the latter forecast suggesting significant benefits in increased global exposure.

Higher dividend yields

Another reason to look beyond U.S. borders is the higher-yield-generating opportunities available outside the U.S. While U.S. dividend-oriented strategies have fared well historically, international stocks have also offered favorable dividend values.

An international portfolio over the past 10 years benefited from a higher dividend yield than that of a U.S.-only portfolio.

Vanguard strategic model portfolios

Our model portfolios are an excellent way to ensure exposure to non-U.S. stocks without having to make tactical allocations based on headlines and market events. Our models all maintain a long-term perspective, using a portfolio construction framework that constantly reviews model allocations for potential volatility and return outcomes. Through a range of total return and objective-based model portfolios, we seek to:

Our client-approved eight-page brochure, Position yourself for a world of opportunity, explains in plain language how a portfolio with meaningful exposure to equities outside the U.S. can minimize risk over long periods, and lays out the valuation and cyclical effects that may indicate a near-term rotation away from U.S. stocks.

Current insights from Vanguard

For more expert commentary, check out:

Market perspectives: Turn to Vanguard's senior economists each month for projected returns and monthly economic highlights on inflation, growth, and expected Fed actions.

Active fixed income perspectives: View our quarterly, in-depth commentary for a sector-by-sector analysis and a summary of how those views affect the Vanguard active bond funds.

Portfolio perspectives: Vanguard's Portfolio Solutions experts help you address evolving issues that may affect your clients; planning.

Notes:

All investing is subject to risk, including the possible loss of the money you invest.

Past performance is no guarantee of future results.

Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income. Diversification does not ensure a profit or protect against a loss.

Investments in stocks and bonds issued by non-U.S. companies are subject to risks including country/regional risk and currency. These risks are especially high in emerging markets.

Vanguard does not, and will not, make any representations about whether a model portfolio is in the best interest of any investor, is not, and will not be, responsible for the determination of whether a model portfolio is in the best interests of any investor, and is not acting as an investment advisor to any investor. It is the investment advisor's responsibility to determine the appropriateness of the model portfolios, or any of the securities included therein, for any client.

IMPORTANT: The projections and other information generated by the Vanguard Capital Markets Model® (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. VCMM results will vary with each use and over time.

The VCMM projections are based on a statistical analysis of historical data. Future returns may behave differently from the historical patterns captured in the VCMM. More important, the VCMM may be underestimating extreme negative scenarios unobserved in the historical period on which the model estimation is based.

The Vanguard Capital Markets Model is a proprietary financial simulation tool developed and maintained by Vanguard's primary investment research and advice teams. The model forecasts distributions of future returns for a wide array of broad asset classes. Those asset classes include U.S. and international equity markets, several maturities of the U.S. Treasury and corporate fixed income markets, international fixed income markets, U.S. money markets, commodities, and certain alternative investment strategies. The theoretical and empirical foundation for the Vanguard Capital Markets Model is that the returns of various asset classes reflect the compensation investors require for bearing different types of systematic risk (beta). At the core of the model are estimates of the dynamic statistical relationship between risk factors and asset returns, obtained from statistical analysis based on available monthly financial and economic data from as early as 1960. Using a system of estimated equations, the model then applies a Monte Carlo simulation method to project the estimated interrelationships among risk factors and asset classes as well as uncertainty and randomness over time. The model generates a large set of simulated outcomes for each asset class over several time horizons. Forecasts are obtained by computing measures of central tendency in these simulations. Results produced by the tool will vary with each use and over time.