Signal From Static: The 60/40 Is Dead. Long Live the 60/40.

Signal From Static: The 60/40 Is Dead. Long Live the 60/40.

The 60/40 portfolio (60% stocks, 40% bonds) is dead. You know it, I know it, and certainly the pundits seem to know it. Or at least that’s the assumption given all the media hype. Heck, looking at the chart below, it’s easy to see why:

60 40 portfolio struggles aren't alone
Note: Chart shows hypothetical portfolio performance of a $100 investment from Dec. 31, 2021, through Oct. 31, 2022, allocated 60% in Vanguard’s 500 Index fund and 40% in its Total Bond Market fund. Sources: Vanguard, Adviser.

For decades, advisers have been recommending investors allocate 60% of their portfolios to stocks and 40% to bonds because, typically, when one fell the other rose, smoothing returns over time. And when stocks or bonds underperformed long enough, the prescribed cure was rebalancing, or selling portions of the outperforming asset class and buying the underperformer to maintain that golden ratio. Whether rebalancing actually improves performance or mitigates risk is a discussion for another day. But it certainly hasn’t worked this year.

It’s easy to second-guess yourself and think, “Well, maybe I should have been a bit more cautious.” Or, given the unprecedented shellacking bonds have taken in 2022, you might wonder if you should have decreased your allocation to fixed income and taken a dive into equities, where yields were at least competitive and potential gains were greater. If the 60/40 is dead, could a 20/80 or an 80/20 allocation have survived this bear attack?

The following chart shows the monthly performance of five portfolios allocated to combinations of Vanguard’s 500 Index fund and Vanguard’s Total Bond Market Index fund.

Every portfolio allocation suffered in 2022
Note: Chart shows hypothetical portfolio performance of a $100 investment from Dec. 31, 2021, through Oct. 31, 2022, allocated to Vanguard’s 500 Index fund (“stocks”) and its Total Bond Market fund (“bonds”). First number represents percentage allocated to stocks: “20/80” reflects 20% invested in stocks and 80% in bonds; “80/20” shows 80% in stocks and 20% in bonds, etc. Sources: Vanguard, Adviser.

No matter how you slice and dice it, the results are the same: At the end of October, the portfolios’ values ranged from $82.59 to $83.78, a meager difference of—unbelievably—just $1.19 (or 1.19%) of the original $100 investment. The results are virtually identical for those who rebalanced monthly.

The reason is simple: Not only have bonds and stocks fallen, but they’ve fallen at about the same rate. Rebalance or not, virtually all investors who’ve stuck with one consistent allocation throughout 2022 are at the same place today.

Where are the “Death of the 20/80 Portfolio” headlines? Nowhere, of course. So, let’s be fair. The 60/40 was certainly not an outlier in this annus horribilis.


This material is distributed for informational purposes only. The ideas and opinions contained herein  should not be viewed as recommendations or personal investment advice. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.

Our statements and opinions are subject to change without notice. You may request a free copy of the firm’s Form ADV Part 2, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged.

Past performance is not an indication of future returns. Tax, legal and insurance information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice, or as advice on whether to buy or surrender any insurance products. Personalized tax advice and tax return preparation is available through a separate, written engagement agreement with Adviser Investments Tax Solutions. We do not provide legal advice, nor sell insurance products. Always consult a licensed attorney, tax professional, or licensed insurance professional regarding your specific legal or tax situation, or insurance needs.

For a summary of Adviser Investments’ advisory services and fiduciary responsibilities to our clients, please review our Form CRS here.

© 2022 Adviser Investments, LLC. All Rights Reserved.

Adviser Investments' logo is a registered trademark of Adviser Investments, LLC.