Our Thoughts on the 60/40 Portfolio

Many have been calling for the “death of the 60/40” for about 4 years now and yet that type of portfolio has yielded very positive returns over the last few years. A recent article from Bloomberg is continuing that trend for 2021/2022. 

First, the basics of this statement. The 60/40 portfolio represents 60% in equities (generally a well-diversified portfolio of large/mid/small/international/emerging market stocks) and 40% in fixed income (generally a well-diversified portfolio of government/corporate/high yield/international bonds). When bond yields rise, bond prices fall (an inverse relationship) on a general basis. 

Indeed, inflation and/or rising rates do make the “40” part of the 60/40 a bit more challenging, but it doesn’t have to mean disaster. Treasuries will likely be hit hardest by rising rates (they tend to be the most interest rate sensitive fixed income products because the risk of default is generally much less than corporate bonds), but we only use a small allocation towards treasuries in general in this market environment. Corporate bonds, floating rate bonds, high yield, etc., can all be deployed to help a bond portfolio weather the storm, which is to say diversification matters. Furthermore, given the uncertainty of rising tax rates, municipal bonds could perform quite well as they will likely be in higher demand. 

Also, don’t forget that bonds can become a ballast when equities sell off, so they become an integral part of a portfolio during equity uncertainty even if the interest rate environment is challenging.  

We don’t feel inflation will hit the levels of the 1970s, mainly because the Fed has more tools to sniff out inflation and hopefully stay ahead of it. We have quite a few clients that have PTSD from the 70’s (not just because of the fashion), but we think your anxiety level should be contained, as we don’t see a repeat. 

We will be keeping a keen eye on this narrative (and others) and will make sure we communicate any changes we see as necessary. We still believe in a well-diversified, equity and fixed income portfolio with the goal of providing positive long-term results while reducing overall volatility.

As always, don’t hesitate to reach out to us if you have questions or would like to chat about your financial wellbeing. We continue to value and appreciate your trust.

Important Information

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

All performance referenced is historical and is no guarantee of future results.

Securities offered through LPL Financial, member FINRA & SIPC. Investment advice offered through Global Retirement Partners, LLC (GRP) a registered investment advisor. GRP, Washington Financial Group and Hub International are separate and unaffiliated with LPL Financial.