Apr 14, 2023 - Economy

The 60-40 portfolio is back

Note: Total return based on 60% allocation to S&P 500 and a 40% allocation to the Bloomberg U.S. Aggregate Bond bond index; Data: FactSet; Chart: Axios Visuals
Note: Total return based on 60% allocation to S&P 500 and a 40% allocation to the Bloomberg U.S. Aggregate Bond bond index; Data: FactSet; Chart: Axios Visuals

A basic building block of the money management industry — the 60-40 portfolio — is doing well again after an awful 2022.

Why it matters: It's a benchmark for the typical diversified portfolio that retirees use for their nest eggs.

  • The construction of the portfolio is all in the name: 60% stocks and 40% bonds.

Flashback: Last year was the worst for this plain vanilla portfolio since 2008.

  • The bond market and the stock market both got hammered in 2022 as the Federal Reserve delivered the sharpest interest rate hikes since the early 1980s.
  • The standard 60-40 portfolio was down about 16%.

State of play: Amid signs that inflation is starting to cool off, investors now seem to think the Fed's sharpest rate hikes are behind us, helping to lift stocks and bonds in 2023.

What they're saying: Todd Schlanger, a senior investment strategist at Vanguard, recently told the Wall Street Journal he expects the 60-40 strategy to work well for the next decade.

  • “60-40 is used as a bellwether,” Schlanger said. “That strategy we believe is an enduring one.”
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