IS THE 60/40 PORTFOLIO DEAD?
This year has been tough for investors, not just because stocks have fallen but also because bonds have not helped mitigate those losses as they have historically done. Below we discuss the outlook for diversified portfolios of stocks and bonds to make the case that the 60/40 portfolio isn’t dead. It may have been wounded this year, and took another blow on Friday after the hotter-than-expected inflation data, but we believe the losses in stocks and bonds this year increase the chances of positive outcomes going forward. Long-term investors take note.
TOUGH YEAR FOR THE TRADITIONAL 60/40 PORTFOLIO
It’s been a tough year so far for a traditional “60/40” portfolio, a portfolio of 60% stocks and 40% bonds. Using the S&P 500 Index and the Bloomberg U.S. Aggregate Bond Index (“Agg”) to represent stocks and bonds, the traditional 60/40 was down 15% as of market close on June 10 on a total return basis. If the year ended now, that loss would trail only 2008 as the worst year on record (the Agg’s first year was 1976).