For more on the topic Learn more about what our experts believe may happen with inflation, interest rates, and fiscal and monetary policies and the implications for portfolios in Vanguard’s 2017 economic and market outlook: Stabilization, not stagnation.
1The figures display the projected range of potential returns for portfolios of 70% U.S. bonds/30% ex-U.S. bonds, and portfolios of 60% U.S. stocks/40% ex-U.S. stocks, rebalanced quarterly, from 10,000 VCMM simulations, as of September 2016. IMPORTANT: The projections or 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. Distribution of return outcomes from the VCMM are derived from 10,000 simulations for each modeled asset class. Simulations are as of September 30, 2016. Results from the model may vary with each use and over time. For more information, see information below.
2Performance is relative to the efficient frontier. The forecast displays simulations of five-year annualized returns of asset classes shown as of June 2016. Scenarios are based on sorting the VCMM simulations based on the 3-month and 30-year Treasury yields at the end of every year. The three scenarios are a subset of the 10,000 VCMM simulations. See “Index simulations” in the appendix of the 2017 economic and market outlook for more details on the asset classes shown here.
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IMPORTANT: The projections or other information generated by the Vanguard Capital Markets Model 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 VCMM is a proprietary financial simulation tool developed and maintained by Vanguard’s Investment Strategy Group. 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. 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.
Source: Vanguard, 2016. 2017 economic and market outlook: Stabilization, not stagnation. Valley Forge, Pa.: The Vanguard Group.