Before the Fed’s recent rate hikes, there were growing rumblings in some quarters that “60/40 is dead.” The argument was that a traditional balanced portfolio of 60% stocks and 40% bonds no longer delivered what it once did for investors and wasn’t relevant. It was a case largely predicated on the extended period of low yields, which limited their ability to contribute to portfolio performance (see our recent piece for additional detail) and diminished their diversification benefits. The acronym “TINA,” short for “there is no alternative,” also emerged to support the notion that a high and growing weighting to stocks was the only path to meet an investor’s goals and return objectives.
We believe that argument has been debunked. Deservedly so.
The chart above shows performance for the 60/40 portfolio over the past two decades in rolling 1- and 10-year periods. While single year periods exhibited greater volatility, long-term periods have provided a more consistent investment experience, lending credence to the diversifying benefits between stocks and bonds.
Since 2000, the range of one-year returns has been as low as -29% and as high as +66%, narrowing to between 4% and 11% over 10-year periods. Our accompanying piece illustrates how strong recent performance has been for equities. Further, bond yields are much more attractive today than they’ve been over most of the past 15 years, making a traditional stock bond portfolio more balanced from a risk-return perspective.
The bottom line is that the 60/40 portfolio appears alive and well. As the saying goes, the rumors of its “death” were greatly exaggerated.
Past performance does not guarantee future results. All investments include risk and have the potential for loss as well as gain.
Data sources for peer group comparisons, returns, and standard statistical data are provided by the sources referenced and are based on data obtained from recognized statistical services or other sources believed to be reliable. However, some or all of the information has not been verified prior to the analysis, and we do not make any representations as to its accuracy or completeness. Any analysis nonfactual in nature constitutes only current opinions, which are subject to change. Benchmarks or indices are included for information purposes only to reflect the current market environment; no index is a directly tradable investment. There may be instances when consultant opinions regarding any fundamental or quantitative analysis may not agree.
Plante Moran Financial Advisors (PMFA) publishes this update to convey general information about market conditions and not for the purpose of providing investment advice. Investment in any of the companies or sectors mentioned herein may not be appropriate for you. You should consult a representative from PMFA for investment advice regarding your own situation.
