FIGURE II-17 A more attractive risk/return trade-off means our time-varying asset allocation framework favors bonds and emerging markets Benchmark     U.S. equities nternational equities U.S. bonds nternational bonds % equities % fied income % equities % fied income        U.S. U.S. U.S. Emerging Developed U.S. intermediate nternational bonds Time-varying value groth small market market credit bonds (hedged) asset allocation factor factor factor equity equity  U.S. long-term reasury (unhedged)  U.S. short-term reasury  U.S. aggregate bonds Notes: Time-varying portfolio allocations were determined by the VAAM. The assets under consideration were U.S. and non-U.S. equities and fixed income, in addition to real estate investment trusts (REITs), U.S. high-yield corporate bonds, and emerging-market equity, which were used to illustrate time-varying allocation not only within equities versus fixed income but also within sub-asset classes. See “Indexes for VCMM simulations” in the Appendix for additional details on asset class indexes. Maximum home-bias constraint of 60% was applied for U.S. equities, and 70% was applied for U.S. fixed income. Allocation to non-U.S. equities would have been higher had there been no home-bias constraint, given its higher expected return. VCMM 10-year projections as of September 2022 were used. The sum of individual sub-asset class allocations may not total 100% because of rounding. Source: Vanguard calculations, as of September 30, 2022. FIGURE II-18 We expect a similar return with lower volatility from our time-varying portfolio September 2022 TVAA Benchmark Equity allocation 50% 60% 10-year expected annualized total return 6.4% 6.4% 10-year expected annualized volatility 9.4% 10.3% 10-year expected Sharpe ratio 0.25 0.24 10-year expected maximum drawdown –7.7% –9.2% Excess return to the benchmark 0% — Tracking error to the benchmark 2.3% — Probability of underperformance relative to benchmark in any given year 51.0% — Notes: Vanguard calculations are based on portfolios optimized by the VAAM, using return projections from the VCMM. The Sharpe ratio is a measure of return above the risk-free rate that adjusts for volatility. A higher Sharpe ratio indicates a higher expected risk-adjusted return. 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. 57