Several weeks ago, Robinhood announced that it planned to offer tokenized shares of private companies for its European investors.1 The reactions that followed were… mixed. One of the more notable reactions came from OpenAI, a private company whose shares Robinhood had declared an intention to tokenize.
OpenAI very publicly and explicitly rejected Robinhood’s proposal to tokenize its shares, stating that the company had no part, and wanted no part, in the potential offering.2
I’ve shared some observations previously about how capital markets are shifting, with the line between public markets and private markets continuing to evolve. What I hadn’t considered in my earlier discussion was the possibility of intermediaries catering to investor desire for exposure to private companies over the preferences of private companies themselves. That is a new twist! But considering how much demand exists for access to these companies, perhaps I shouldn’t have been so surprised.
Did you see Vanguard recommended a new asset allocation portfolio of 70% fixed income and 30% equities? What should investors make of that allocation guideline?
Thanks for sharing the article – I hadn’t heard about it!3 I did a little digging, and it looks like the source information from Vanguard is here.
To summarize for anyone else who is also hearing about it for the first time, Vanguard announced a shift to a 30% equities/70% fixed income mix for its time-varying asset allocation portfolio. The heavy bond allocation (70%!) unsurprisingly has attracted attention from personal finance writers.4
Big picture, I think folks might be reading more into the latest recommendation than is warranted. Yes, Vanguard is recommending a 30% equities/70% fixed income portfolio. But if my understanding is correct, based on this report, Vanguard has actually been advocating for a majority fixed income portfolio for some time.5 At least when it comes to this version of its model portfolio, which Vanguard is calling its time-varying asset allocation portfolio.
And why is Vanguard making this bond-heavy recommendation? This time-varying asset allocation portfolio is simply an output based on a series of asset class return predictions, also known as capital market assumptions, that serve as the inputs.
Last November, I wrote about capital market assumptions after Goldman Sachs similarly made headlines for its attention-grabbing prediction: 3% annual return for the S&P 500 for the next 10 years.
At the time, I wrote:
In 10 years’ time, we could find that Goldman (or another research desk) was right. Let’s say that in 2034, the historical 10-year annualized return of the S&P 500 does turn out to be 3%. But in any given year from now until then, the annual return could be significantly higher or lower – who knows which random walk we would take from here to there.
So what’s the point, and how should investors think about these estimates?
For starters, the muted expectations for large cap U.S. equities reflects a broadly accepted reality that the S&P 500 has experienced abnormally high returns in recent years. It would be reasonable to say that, to some extent, current valuations are factoring in future earnings growth, and many upside scenarios are already priced in. In short, it’s likely we’re enjoying high returns now at the expense of lower returns later.
After I wrote the above, we experienced Liberation Day tariffs and a volatile start to 2025. But that period was short-lived, and the S&P 500 is once again back to setting new highs. Anyone else feel like the April market drawdown was a lifetime ago?
Vanguard’s capital market assumptions reflect its belief that U.S. equities are trading above the firm’s measures of fair value. In an echo of what Goldman published last year, Vanguard’s latest capital market assumptions include the following forecasts of 10-year annualized returns:6
U.S. equities to return 3.3% to 5.3%
U.S. growth stocks to return 1.9% to 3.9%
U. S. aggregate bonds to return 4.0% to 5.0%
To loosely paraphrase/interpret Vanguard’s conclusions here: 1) bonds are likely to offer equal or higher returns versus stocks; 2) bonds are generally less risky versus stocks; so 3) portfolios should hold more bonds, since they’ll offer equal or higher returns for less risk. In other words, put these capital market assumptions through a metaphorical blender (aka the Vanguard Asset Allocation Model), and out pops a recommendation – in this case, the time-varying asset allocation of 30% equities/70% fixed income.
One caveat to this recommendation, which again, relies on model-based capital market assumptions: in Vanguard’s model, like many others I’ve seen, the prediction range for equities is wider than that for bonds. That admittedly gives me some cause for pause when considering an allocation that recommends such a significant overweight to bonds.
A second caveat is that this recommendation holds only two options: stocks and bonds. Missing from Vanguard’s set of capital market assumptions are any set of investments outside of traditional public markets.
As I noted last November:
[A]lthough the individual asset class forecasts are interesting, the relative expectations between asset classes may be more useful. For example, JP Morgan expects that U.S. large cap equities will return 6.7% annualized over the next 10 years, but it expects that Private Equity will return 9.9% annualized over the next 10 years. Similarly, BlackRock expects U.S. equities to return 6.6% annualized over the next 10 years, but it expects that Private Equity will return 10.2%.7 These are just two examples, but across a sampling of capital market assumptions, certain relative return expectations are more consistent (one of which is, private equity is expected to outperform public equities by a reasonable margin).8
[P]utting it all together, these capital market assumptions (in aggregate) are a set of data points that can help inform asset allocation decisions. A lot of analysis on historical data, present conditions, and of course, future assumptions, go into these forecasts. And although I doubt they’ll be exactly right, I do think they’ll be generally, directionally correct. Which is to say, I believe the highest potential long-term future returns exist outside of public equities and bonds, and a diversified portfolio with public and private market investments will be better positioned over the coming years.
When I saw the article you shared, my first reaction was – how is Vanguard justifying this recommendation? After digging in, my second reaction was, half-jokingly – is this Vanguard’s way of trying to make the case for alternative investments down the road?9
To put a finer point on it, the 10-year expected annual return from Vanguard’s time-varying asset allocation portfolio is 5.5%. To me, and pretty much every institutional investor I could think of, that’s unacceptably low. After factoring in an estimated 2% for inflation, the Vanguard portfolio is basically predicting 3.5% annualized real returns for 10 years. No, thank you.
When even Vanguard is saying that public market portfolios might not offer much over the next 10 years, it’s no wonder investors are eager to access private markets.
Thanks for the question, and as always, please reach out with any others: askacio@ivyinvest.co!
See you in two weeks,
Wendy
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The Wealth Advisor, August 2025.
Source: Capital market assumptions - Institutional | BlackRock, May 2025.
It’s worth noting that Capital Market Assumptions are the expected “index” return for each asset class. In asset classes where manager selection can generate additional alpha (and I would say private markets definitely falls into this category), the potential total return can be higher.
I say half-jokingly because Vanguard is in fact teaming up with Wellington and Blackstone to offer alternative investments: Unlikely Allies: Vanguard and Others Team Up to Offer Private-Market Investments | Morningstar, May 2025.