More than most, Vanguard has enjoyed the stock market surge in recent years.

It has harvested mammoth inflows of assets, and its Total Stock Market Index fund has produced a near-record 11.4 percent to date this year.

But that could all change.

“There is a need for caution and a need for customers to be comfortable with the amount of risk in their portfolios,” said new Vanguard Chief Investment Officer Greg Davis in an Associated Press report by Stan Choe. “It’s something they should be looking at. You can never predict when a downturn will come, but it will eventually come, and investors need to make sure they’re not too far ahead of their skis.”

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That wisdom comes from a man who watches over more than $3.8 trillion, despite the fact that U.S. and European stocks, as well as emerging market bonds, are all headed higher.

“The bigger concern is that valuations have gotten a bit stretched, on the equity side as well as the fixed-income side,” Davis said. “Much of that can be attributed to the very loose monetary policy from central banks around the world. That’s put a very strong bid across these markets.”

The solution? Diversify with bonds.

“If you go back and look at the worst months for the equity markets, high-quality bonds provided a strong ballast to an investor’s portfolio,” he said. “It’s an asset class that’s not expected to go down, even in a low-rate environment.”

Read more advice from Vanguard’s CIO from the Associated Press here, and check out previous VISTA Today coverage of Vanguard here.

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