A notable characteristic of the sell-off in global The figure also shows that our outlook for global stocks and bonds in 2022 was the degree to stocks and bonds has reversed its downward 6 which both fell together. Figure II-2 shows our trend in the last decade. This higher return 10-year outlook and realized returns for a globally outlook is in large part because of higher interest diversified, 60% stock/40% bond portfolio since rates to fight inflation, which caused asset price 2001. Rising equity valuations in 2021 pushed declines through the equity valuation and realized returns above our forecasted range bond yield channels. These forces also raised from 10 years prior, but large losses in both expectations for the next decade, because yields equity and fixed income over the last 12 months on developed-market sovereign debt are the have brought those returns within the range. foundation on which other risky returns are built. FIGURE II-2 Returns on a 60/40 balanced portfolio are now more in line with our view from 10 years ago 10-year annualized returns %    5.5%         Interquartile range Actual return Median expectation Notes: The chart shows the actual 10-year annualized return of a 60/40 stock/bond portfolio compared with the VCMM forecast for the same portfolio made 10 years earlier. For example, the 2011 data point at the beginning of the chart shows the actual return for the 10-year period 2001–2011 (solid line) compared with the 10-year return forecast made in 2001 (dotted line). After 2022, the dotted line is extended to show how our forecasts made between 2013 and 2022 (ending between 2023 and 2032) are evolving. The interquartile range represents the area between the 25th and 75th percentile of the return distribution. The portfolio is 36% U.S. stocks, 24% international stocks, 28% U.S. bonds, and 12% international bonds. See the Appendix section titled “Indexes for VCMM simulations” for further details on asset classes. Source: Vanguard calculations, as of September 30, 2022. IMPORTANT: The projections and other information generated by the 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 VCMM are derived from 10,000 simulations for each modeled asset class. Simulations as of September 30, 2022. Results from the model may vary with each use and over time. Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index. 6 This breakdown in correlation was disconcerting for many investors and led some to question whether the 60% stock/40% bond portfolio still had merit as an investment tool. Our research finds that correlations can move aggressively over shorter investment horizons but that it would take long periods of consistently high inflation for long-term correlation measures—those that more meaningfully affect portfolio outcomes—to turn positive (Wu et al., 2021). 38