Is The 60/40 Rule Back? | Bankrate (2024)

Diversification lines the bedrock of long-term investing. By spreading your dollars across a mix of asset classes, sectors and industries, you help reduce the risk of substantial portfolio losses in any given year.

And for decades, the 60/40 rule has been a cornerstone of diversification. A 60/40 investment strategy allocates 60 percent of holdings to stocks — a high-risk, high-reward asset — and 40 percent to bonds — long considered boring but dependable. The idea is that one helps balance the other, offering more stability than a stock-heavy portfolio and better returns than a bond-heavy portfolio.

The 60/40 mix has been described as “dead” and “alive and well” many times since the concept was developed by Nobel Laureate Harry Markowitz in 1952.

While many analysts and experts predicted the demise of the 60/40 rule at the close of 2022 — a particularly brutal year for both stocks and bonds — this long-term investment strategy is looking favorable once again in 2024 and beyond.

What is the 60/40 rule?

The 60/40 portfolio is a simple investment strategy that allocates 60 percent of your holdings to stocks and 40 percent to bonds. It’s sometimes referred to as a “balanced portfolio.”

The 60/40 rule has been widely recognized and recommended by financial advisors and experts for decades. The idea is that over the long haul, stocks have historically provided higher returns, while bonds offer fixed income and can act as a buffer during market downturns.

While the 60/40 split is a starting point, experts agree that the standard allocation should be tailored to an investor’s risk tolerance, time horizon and goals. A younger investor with a higher risk tolerance may take a more aggressive 80/20 approach, for example, while a recent retiree may favor a 40/60 approach.

Criticism of the 60/40 rule grows in 2022

Both stocks and bonds plunged in 2022. High inflation, rising interest rates and concerns of a looming recession caused the S&P 500 benchmark index to slump 18 percent. The Total Bond Index, which tracks U.S. investment-grade bonds, lost more than 13 percent.

If you held a 60/40 mix of stocks and bonds in 2022, you would have lost 16 percent, according to calculations by Vanguard. Neither stocks nor bonds helped soften the blow to investors’ bottom lines.

Many analysts and strategists criticized or at least voiced skepticism about the 60/40 portfolio, which failed to protect investors from a historically volatile year. Data from JP Morgan Chase noted that 2022 was among the worst years for a 60/40 portfolio since the mid-1970s.

“We think investors have many reasons to be concerned that the 60/40 might be dead,” a Goldman Sachs brief noted in January 2023. Meanwhile, publications like Barron’s and Kiplinger wrote headlines literally titled “The 60/40 Portfolio is Dead.”

Is the 60/40 rule back?

Despite the pessimism, stocks and bonds rebounded in spectacular fashion as 2023 came to a close.

Stocks zoomed in November and December, fueled in part by news from the Fed of anticipated rate cuts in 2024. In 2023, the S&P 500 rallied 24 percent and the NASDAQ 100 cinched a stunning 55 percent gain — the tech-heavy index’s best annual performance since 1999.

Another reason for the renewed optimism: Higher bond yields today presage more attractive future returns, especially if prevailing rates cool off from their 2023 highs.

“With higher yields today, coupled with cooling inflation and a Fed that’s likely to cut rates this year, bonds should continue to provide support when added to a portfolio of stocks,” says Collin Martin, fixed income strategist with the Schwab Center for Financial Research.

Factors that resulted in the 2022 decline in bond prices — record-low bond yields and the start of the most aggressive series of Fed rate hikes in decades — have ceased to exist.

“We believe 2022 was the anomaly,” says Martin. “Today, bond yields remain near their highest levels since the global financial crisis, meaning there’s a lot more income to be earned that can help offset potential price declines should they occur.”

Vanguard, the second-largest asset management company in the world, raised its U.S. bond return expectations over the next decade to a nominal annualized 4.8 – 5.8 percent. Compare that with the 1.5 – 2.5 percent it expected before the Fed began hiking rates in March 2022.

In its economic and market outlook for 2024, Vanguard anticipates interest rates will remain above the rate of inflation for several years, offering a stable base for long-term risk-adjusted returns.

That spells good news for well-diversified investors and followers of the 60/40 rule. In fact, November 2023 was the best month for the classic stock and bond allocation since 1991, according to a Bank of America Global Research report. In a similar vein, a portfolio with a 60 percent weighting in the Morningstar U.S. Market Index and a 40 percent weighting in the Morningstar U.S. Core Bond Index netted returns of 18 percent in 2023.

Will stocks kill the 60/40 rule?

Still, the rekindled appreciation for the 60/40 portfolio may soon fizzle once again. The outlook for bonds is bright, but prospects for stocks have dropped following 2023’s red-hot year-end rally.

The average expected nominal returns for U.S. stocks over the next 10 years is just 5.5 percent, compared to the 11.6 percent average over the past 10 years, according to projections from seven major asset-management firms analyzed by Moringstar.

“It looks like the 60/40 portfolio may have returned, but how long it lasts is a different story,” says Lawrence Sprung, a certified financial planner and founder of Mitlin Financial. “It will be interesting to see how that plays out over the year.”

At its core, the 60/40 portfolio is meant to play the long game. It’s not meant to be tweaked and adjusted each time the market takes a nosedive. While it’s easy to criticize traditional balanced portfolios for not adjusting to market changes, creating a more effective strategy is challenging. The best way to react to market shifts, especially fundamental changes, is usually clear only in hindsight.

Bottom line

Despite its imperfections, the 60/40 rule remains a solid starting point for portfolio construction, thanks to its simplicity and proven long-term resilience.

“Many times investors get in trouble by simply making changes based upon current events,” says Sprung. “The 60/40 rule is good for providing structure and discipline to an investor’s portfolio.”

So, you might say the 60/40 rule is back again, though proponents would argue it never really left.

Is The 60/40 Rule Back? | Bankrate (2024)


Is the 60 40 portfolio back? ›

While many analysts and experts predicted the demise of the 60/40 rule at the close of 2022 — a particularly brutal year for both stocks and bonds — this long-term investment strategy is looking favorable once again in 2024 and beyond.

Is 60/40 too conservative? ›

The traditional 60/40 investment portfolio may be too conservative, according to some financial experts, but the allocation can be a helpful guidepost.

Is the Vanguard 60 40 portfolio dead? ›

The long-popular 60% stocks-40% bonds portfolio remains alive and well and has proved to be successful despite a rough 2022, according to a key Vanguard Group researcher.

Is 60/40 asset allocation good? ›

The 60/40 portfolio is the standard-bearer for investors with a moderate risk tolerance. It gives you about half the volatility of the stock market but tends to provide good returns over the long term. For the past 20 years, it's been a great portfolio for investors to stick with.

Why is the 60/40 portfolio not dead? ›

Diversification still works

Although the strategy lost 15.8% in 2022, an investor that stayed the course gained +17.7% the following year. Importantly, in the long run, the 60/40 portfolio mix has generated an impressive average annual return of +9.3% longer-term for less risk than a 100% stock portfolio.

Will stocks or bonds do better in 2024? ›

Bond outlooks improve, but stocks' prospects drop on the heels of 2023′s rally. Better things lie ahead for bonds, but the prospects for stocks, especially U.S. equities, are less rosy.

What is the trusted 60 40 investment strategy? ›

Over their 50 years of marriage, Dave and Kathy Lindenstruth adopted a time-honored Wall Street strategy to safeguard and grow their retirement nest egg: a mix of 60% U.S. stocks and 40% bonds known as the 60-40 portfolio.

Should I be aggressive with my 401k right now? ›

While being more aggressive can make a lot of sense if you have a long time until retirement, it can really sink you financially if you need the money in less than five years. To reduce risk, investors can add more bond funds to their portfolio or even hold some CDs.

What is the best asset allocation for retirement? ›

At age 60–69, consider a moderate portfolio (60% stock, 35% bonds, 5% cash/cash investments); 70–79, moderately conservative (40% stock, 50% bonds, 10% cash/cash investments); 80 and above, conservative (20% stock, 50% bonds, 30% cash/cash investments).

Can Vanguard go bust? ›

Vanguard is paid by the funds to provide administration and other services. If Vanguard ever did go bankrupt, the funds would not be affected and would simply hire another firm to provide these services.

Are 60 40 portfolios facing worst returns in 100 years? ›

LONDON, Oct 14 (Reuters) - Investors with classic "60/40" portfolios are facing the worst returns this year for a century, BofA Global Research said in a note on Friday, noting that bond markets continue to see huge outflows.

What is better than the 60 40 portfolio? ›

There, he predicted that a 60/40 portfolio was only projected to grow by a rate of 2.2% per year into the future and that those who wished to become adequately diversified will need to explore other alternatives such as private equity, venture capital, hedge funds, timber, collectibles, and precious metals.

Should I invest in a 60 40 portfolio? ›

In other words, 60/40 is not the best choice for the average twenty-something with a 60- or 70-year time horizon. They would likely benefit from more equities to grow their portfolio over the long run. It's a good starting place, but an investor will need to tailor a portfolio to their needs.”

What is the most successful asset allocation? ›

If you are a moderate-risk investor, it's best to start with a 60-30-10 or 70-20-10 allocation. Those of you who have a 60-40 allocation can also add a touch of gold to their portfolios for better diversification. If you are conservative, then 50-40-10 or 50-30-20 is a good way to start off on your investment journey.

What is the outlook for 60 40 funds? ›

The outlook for 60:40 returns is challenging

The US-centric portfolio is expected to deliver an annualised total return of around 6.5% over the next 10 years, with the global portfolio slightly better at 6.8%.

Do I need bonds in my portfolio in 2024? ›

Ultimately, holding bonds in a portfolio can help with diversification. Often, portfolio solutions (investments made up of carefully selected and managed mutual funds and/or exchange-traded funds) will include a fixed income component depending on how much risk you're comfortable with or when you will need your money.

What is the average return on Vanguard 60 40 fund? ›

Vanguard calculations in GBP, based on data from Refinitiv. Calendar-year 2022 returns from 31 December 2021 to 31 December 2022 were -9.0% for the 60% equity/40% bond portfolio. Equity comprises UK equity (MSCI UK Total Return Index) and global ex-UK equity (MSCI AC World ex UK Total Return Index).

What is the lowest 20 year return on the Stock Market? ›

The worst 20 year return was a gain of less than 2% ending in 1949. This makes sense when you consider that period included the Great Depression and World War II. One of the neat things about the distribution of returns over 20 years is almost 90% of the time annual returns were 7% or higher.

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