The 60/40 Portfolio Will Outlive Us All

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As two recent commentaries demonstrate, in their zeal to promote their agendas, asset managers are claiming that the humble 60/40 portfolio is doomed to the dustbin. But their analysis is flawed. The 60/40 will outlive us all.

Let’s start with a recent Yahoo Finance article titled 60% stocks and 40% bonds...not so fast, which caught my attention. The theme? The simplest investing idea in the world may have died…60% stocks and 40% bonds...” Then, for drama, the editor included a photograph of a mock 60/40 graveyard with “RIP” on the tombstone.

He continued: “The traditional 60/40 mix, which has returned about 6% a year since 1970…might not be enough to generate the returns that investors have come to expect.”

Well, that explains it.

Except he is wrong.

The traditional 60/40 mix (60% U.S. stocks, 40% U.S. bonds) has not returned 6% a year since 1970. It returned around 9.3% yearly from 1970 through 2018. If it seems he didn’t miss it by much, an investment that returned 9.3% yearly would return 350% more cumulatively than an investment that returned 6% during this 49-year period.

However, even if he knew 60/40 returned 9.3% (he didn’t realize that the source he cited was after inflation), he would have written the same story. He felt so comfortable piling on the humble balanced portfolio that, no matter what the returns, he would have found an agreeable audience – or one oblivious to returns and fact checking.