In praise of boring

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  By Guest Blogger Sinan Terzioglu

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In today’s rapidly changing investment landscape, filled with constant headlines and evolving market outlooks, long-term investors often feel pressured to make short-term adjustments to their portfolios. These reactions often stem from recent market movements and predictions rather than a disciplined strategy. One approach that has consistently stood the test of time is the 60/40 portfolio, which allocates 60% to equities and 40% to fixed income. This balanced mix offers a resilient foundation for investors seeking long-term growth and stability, even as markets evolve.

Over the past five years, a balanced and globally diversified portfolio has delivered an average annual return of approximately 7%—a period marked by unprecedented challenges including a global pandemic, two bear markets, multi-decade highs in inflation, the most rapid interest rate hike cycle in history, and now the highest U.S. tariffs since the Great Depression.

Its resilience stems from its balanced structure: equities drive long-term growth above inflation, while fixed income provide stability and helps cushion downside risk during periods of volatility. This combination allows investors to stay invested through uncertainty and benefit from the strength of global equity markets over time.

Still, some investors wonder whether to adjust their allocations based on institutional forecasts. A recent question I received was:

“I saw an article about Vanguard’s Time-Varying Asset Allocation (TVAA) portfolio and that fixed income now accounts for 70% of the portfolio, up 3% from the previous month. Should I reduce my 60% equity allocation and increase my fixed income allocation?”

Vanguard’s Time-Varying Asset Allocation (TVAA) strategy offers a model portfolio designed to enhance long-term, risk-adjusted returns over the next decade. It’s built on insights from the Vanguard Capital Markets Model (VCMM), which regularly publishes 10-year return forecasts. Recently, the model has indicated that U.S. equities may underperform relative to bonds and international stocks due to elevated valuations.

While these projections are useful for setting expectations, they are not meant to be followed as direct investment advice. Vanguard emphasizes that these forecasts are informational tools—not recommendations to time the market or make major changes to strategic asset allocations.

History reinforces this caution. In a 2012 report, Vanguard forecasted muted returns for U.S. equities over the following decade, citing high valuations and economic headwinds. Yet, actual returns far exceeded expectations. From 2013 to 2023, U.S. stocks returned 11.40% annually—well above Vanguard’s midpoint forecast of 7.7% while from 2013 to present, U.S. stocks returned over 15% annually. This discrepancy highlights the inherent uncertainty in long term forecasting and the danger of making significant allocation decisions based on these forecasts.

Forecasts from reputable institutions like Vanguard rely on assumptions about inflation, interest rates, valuations and market behavior that may not hold. Vanguard’s own research shows that even the most reliable indicators, like price-to-earnings ratios, explain only about 40% of long-term return variation. This underscores the importance of consistency over precision.

One of the most compelling reasons for long-term investors to maintain a diversified portfolio with 60% allocated to equities is the unpredictable nature of market leadership. Over time, a small number of companies drive a disproportionate share of total market returns. Maintaining a broadly diversified equity allocation increases the probability of owning these future winners—before their dominance becomes obvious.

Take NVIDIA’s incredible rise to a $4 trillion market valuation, now representing over 8% of the total U.S. equity market. Once a specialized player in graphics processing, it has evolved into a dominate force in artificial intelligence and one of the most significant drivers of U.S. market performance. Yet, back in 2012, no major forecaster anticipated NVIDIA’s rise to prominence. This highlights the limitations of even the most sophisticated forecasting models and underscores the importance of maintaining a diversified 60% equity allocation for investors with long-term horizons.

Global diversification further enhances this principle. While U.S. markets have dominated over the past 15 years, market leadership is cyclical. Japan led in the 1980s, emerging markets surged in the 2000s, and Europe has seen renewed strength in 2025. By maintaining exposure across regions and sectors, investors increase their chances of owning tomorrow’s top performing markets.

Maintaining a 60% allocation to a globally diversified equities gives investors access to many of the world’s most profitable and resilient companies. From U.S. giants like Apple, Microsoft, Walmart, Visa, Costco, Coca-Cola, Johnson & Johnson, and Warren Buffett’s Berkshire Hathaway, to international leaders like Nestlé (Switzerland), Samsung (South Korea), and Toyota (Japan), and Canada’s major banks. These firms dominate across sectors and geographies, leveraging their scale and innovation to create long-term shareholder value. By investing globally, you’re not relying on a single economy and market—you’re participating in the growth of companies shaping the global economic landscape.

In summary, long-term investors should be mindful not to make major changes to their equity allocation based solely on market forecasts. While these projections can help shape expectations, they shouldn’t drive foundational asset allocation decisions. The 60/40 portfolio remains a time-tested strategy, offering a disciplined approach that balances growth with downside protection. As Vanguard often highlights, staying consistent with your investment strategy is often more important than trying to time the market.

Sinan Terzioglu, CFA, CIM, is a financial advisor with Turner Investments, Private Client Group, Raymond James Ltd.  He served as vice-president of RBC Capital markets in New York City and VP with Credit Suisse in Toronto.

Source: https://www.greaterfool.ca/2025/08/11/in-praise-of-boring-2/