Vanguard is advising investors to shift to a new portfolio mix of 40% equities and 60% fixed income, a significant change from the traditional 60/40 split. They expect high-quality US and foreign bonds to perform similarly to US equities with lower risk. Non-US equities are projected to outperform US stocks over the next decade.

The move is a response to concerns about an AI bubble and overvaluation of top S&P 500 stocks like Apple, Microsoft, and Amazon. Vanguard sees this shift as a way to balance risk and returns, especially for investors with a medium-term outlook. Retirement savers should consider their risk tolerance and time horizon before making changes.

While some financial planners support the new 40/60 mix, others caution against abandoning the traditional 60/40 portfolio, emphasizing the value of balance and long-term growth. Retirees nearing the end of their careers may benefit from shifting to a less risky portfolio with more fixed income holdings, aligning with a 40/60 strategy.

Vanguard’s advice is to diversify and stay the course, considering smaller-cap US companies and non-US investments to mitigate risks. The aim is to achieve similar returns to a 60/40 portfolio but with lower risk. Retirees should focus on their financial goals and income needs rather than chasing high returns.

Kerry Hannon, a Senior Columnist at Yahoo Finance, recommends a cautious approach to portfolio adjustments, emphasizing the importance of diversification. She advises investors to focus on their financial goals and not get caught up in FOMO regarding market returns. Target date funds are a popular choice for many retirement savers looking to adjust their portfolios safely.

Read more at Yahoo Finance: Vanguard flips the script on 60/40 investment strategy