The 60/40 Portfolio Model Revival
For decades, the 60/40 portfolio has been a highly regarded method of portfolio construction. In its simplest form, the 60/40 portfolio is having 60% of your portfolio invested in higher risk, historically higher return, assets such as stocks and the other 40% invested in lower risk, but lower return, assets such bonds.
For several decades the 60/40 portfolio strategy consistently provided investors with risk adjusted returns outperforming a 100% all equity portfolio, like the S&P 500 Index. The returns for the 60/40 were marginally lower, but the volatility was largely lower.
2022 has been challenging for 60/40 portfolios. The total return of the 60/40 was historically low due to persistent inflation, rising interest rates and growing recession fears. There is a fear that continued high inflation levels could continue to produce a positive correlation between stocks and bonds, reducing the potential diversification benefits of a 60/40, stock/bond mix. It is tempting to want to give up on the 60/40 portfolio, but we believe its long-term prospects are likely to be robust, and now, even more than for years, its potential is excellent. The 60/40 is designed for a long-term investor. Over the past 95 years, this strategy has been positive 78% of the time.