1 minute 52 seconds
We’re underweighting stocks in our time-varying portfolios. For example, we’re more conservative than the traditional 60 percent stocks / 40 percent bonds risk profile. We’re at 40/60.
Why? It’s not pessimism about AI or the economy; it’s about risk from a stock market correction.
U.S. equity market valuations are stretched. Sure, stocks have gone gangbusters for much of 2025 and, who knows, the momentum and hype may continue for a while. But our analysis of fundamental drivers points to greater odds that longer-term returns will be subdued, below historical averages.
Meanwhile, bonds remain attractive in the high-interest-rate environment. Our models project that, over the next decade, a 40/60 portfolio can achieve similar returns to a 60/40, but with less risk. In other words, markets may not appropriately reward the additional risk of stocks.
We also balance risk within asset classes. Corporate debt valuations are stretched, so we’re cautious about credit and high yield, but we’re overweight Treasuries.
Within equities, our cautious views stem from growth stocks. Their prices already reflect high expectations for AI, so they have little room for expansion.
With stretched equity valuations and interest rates above the rate of inflation, our models project that a 40/60 portfolio could achieve comparable returns to a 60/40 over the next decade, but with less risk. We’re a bit more conservative within each asset class as well.
Watch the video to see how we’re balancing risk and return in today’s market environment.
Notes:
- All investing is subject to risk, including the possible loss of the money you invest. 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 bonds are subject to interest rate, credit, and inflation risk.
- Investments in stocks and bonds issued by non-U.S. companies are subject to risks including country/regional risk and currency risk. These risks are especially high in emerging markets.
Notes:
- All investing is subject to risk, including the possible loss of the money you invest. 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 bonds are subject to interest rate, credit, and inflation risk.
- Investments in stocks and bonds issued by non-U.S. companies are subject to risks including country/regional risk and currency risk. These risks are especially high in emerging markets.
