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Check out these recent headlines on the classic 60/40 investing strategy1:
The 60-40 investing strategy is back after tanking last year
BlackRock Ditching 60/40 Portfolio Under New High Inflation Regime
Sorry, but all these headlines completely miss the point. No, the 60/40 mix of stocks and bonds is not dead; No, it is not the first time that we have had a high inflation regime, transitory or not. 60/40 is not “back” because it never left.
Despite the headline, the Wall Street Journal The chart (above) reveals that 2022 is the exception that proves the point: the previous selloffs, 2000-03 and 2008-09, were stock-driven. You have to go back to 1981 to find another year where both stocks and bonds fell double digits in the same year. Those years are pretty ugly for investment portfolios.
And that’s exactly the point: an outlier year every 4 decades or so makes for a pretty reliable investment strategy. The academic evidence that this type of investment outperforms all others over a long enough period is overwhelming.
I think Vanguard’s opinion is more in line with mine: Improved outlook for the 60/40 portfolio. That is, with rates approaching terminal value, bonds now generate a decent yield and provide a drag against the volatility of the equity portion of their portfolios.
I have read endless comments over the years about the return of the active investor and why the passive one is definitely going to fail. this cycle. It’s amazing how much excitement is generated when nearly half of active managers outperform for a quarter or two…
See also:
What beat the S&P 500 in the last three decades? Doing nothing. (Morning Star, )
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1, the 60/40 caveat reflects a fairly moderate risk tolerance, and higher capital allocations (for example, 70/30) might be appropriate for people with higher risk tolerance and/or longer investment horizons .
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