After the “Liberation Day” madness of April 2025, I became increasingly defensive, although my asset allocation has not (yet) reached the purpose that the rule of thumb that your age should match your fixed income assets would recommend. If that were the case, I’d have to speculate 28% in stocks and 72% in fixed income, and I’m not that conservative (yet).
As we indicated within the previous column on the Purpose Longevity Pension Fund, I intend to live long (God willing); That’s why I also imagine that stocks (at the least high-quality dividend stocks or ETFs that hold them) should all the time make up at the least half of an investment portfolio – even in retirement.
A core fund for retirees is the Vanguard Retirement Income Fund (VRIF), which trades on the TSX. The ETF name accurately describes what it does and is one in all several funds continuously mentioned by the Retirement Club (see this introductory blog in regards to the club, co-founded by blogger Dale Roberts).
Shortly afterwards I began a position at VRIF Market launch in 2020. At that point, the asset allocation was roughly 50% equities and 50% fixed income, spread across all regions in the standard proportions; However, during 2025, I noticed that VRIF had begun to cut back its equity exposure and increase its fixed income allocation, almost to the purpose that it was 70% bonds to only 30% stocks.
Semi-retired Globe & Mail financial columnist Rob Carrick mentioned this in his bi-weekly column at the top of January: “A big proponent of bonds is investment giant Vanguard, which took an unusual stance last year and proposed a portfolio of 70% bonds and 30% stocks. The underlying reasoning is sound: stocks have risen sharply and bonds are undervalued.”
I also noticed different ones Vanguard YouTube videosThe U.S. parent company is displaying similar caution – a move away from major U.S. growth mega-cap stocks in favor of other developed and emerging economies around the globe.
On January 21, Vanguard Canada held a media briefing with two of its top economists at its Toronto headquarters, where I used to be capable of ask questions on perceptions of its increasing caution. (You can find at the least two news stories online that were filed shortly after the event Bloomberg News And Investment manager.)
4% goal distribution based on Bengen’s famous 4% rule
Our focus here is on VRIF. The original press release emphasized that the goal is to supply income-seeking investors with a “targeted 4% annual distribution.” This happens to be in keeping with William Bengen’s famous 4 percent rule, which “is fine with me,” as I quipped on the media briefing.
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In response to my query, Vanguard Canada spokesperson Matthew Gierasimczuk said that VRIF’s asset allocation “fluctuates over time” but that the goal is the 4% return goal: Vanguard sees a “more optimistic outlook for bonds and fixed income.”
Kevin Khang, head of worldwide economics research at Vanguard, reiterated that the ETF goals to “fund a certain level of payout. Bonds, in our view, can achieve the certain level of payout desired” and “the U.S. stock market is quite expensive for obvious reasons.” After the good financial crisis, bonds didn’t pay much, “but now they’re appropriately valued: relative to inflation, they provide a decent real return.”
For this column, I used to be then referred to Aime Bwakira, Head of Product at Vanguard Canada. In my view, it seems that the explanation for VRIF’s high exposure to fixed income is to not tackle more risk than one must take, a particularly sensible stance that is suitable for the retirees that VRIF is geared toward.
Bwakira confirmed that Vanguard has “focused more on bonds – particularly higher quality bonds and corporate bonds – than in previous years, while remaining within its equity guidelines” of a minimum of 30% and a maximum of 60%. This positioning “reflects the current environment and the results of our capital market forecasts.”
Three reasons for increasing the proportion of fixed-interest securities
The reasoning is threefold.
First: higher rates of interest. Bonds – particularly corporate bonds – are paying greater than they did a few years after the Great Financial Crisis (GFC) of 2008: “This makes them well suited to supporting the VRIF’s 4 percent return target without incurring unnecessary stock market risk.” VRIF includes exposure to corporate bonds specifically to assist increase returns for investors.
Second, given today’s market outlook, the fund model has shifted toward fixed income, as bonds “currently offer a more favorable balance between expected return and risk.” I used to be also referred to the present VCMM 10-year forecasts (VCMM = Vanguard Capital Markets Model) for various asset classes. It can be published within the US for US investors Vanguard Capital Markets Model® forecasts.
The document, dated January 22, 2026, states: “Even at current stretched valuations, rising earnings growth could provide near-term momentum for stocks. However, we are increasingly convinced that the long-term outlook for U.S. stocks is muted. Our model assumes an annual return of approximately 3.9% to 5.9% over the next 10 years.” It continues: “Our muted long-term return forecast for US stocks is fully consistent with our more optimistic outlook for an AI-driven US economic boom.”
