Is the 60/40 portfolio really dead?

It has been a rough last couple of years for the 60/40 portfolio investors, but does that mean this investing strategy is dead? On today’s episode of A Wiser Retirement™ podcast, Casey Smith and Andrew Pratt, CFA® talk about the 60/40 portfolio strategy and its performance historically.

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SUMMARY:

The 60/40 portfolio is a popular investment strategy among those who seek a balance of moderate return and moderate risk. Despite recent negative press that suggests this allocation may be obsolete, we still believe it is an effective and efficient strategy for long-term financial success. While outperforming the retirement benchmark (6.7%) is possible, most investors do not achieve an 8% rate of return due to their financial decisions. If we analyze the performance of a hypothetical 60/40 portfolio over the last year, as well as its expected performance over this year we see that it was down about 16% in 2022. However, it has risen by almost 10%, representing a significant recovery. However, it’s important to consider that the performance of this portfolio in high inflation periods and significant risk periods such as recessions is not always favorable. 

Furthermore, there is a correlation between interest rates and portfolio performance. When interest rates fall, the 60/40 portfolio tends to perform better,  which should make investors consider building a 60/40 allocation during interest rate downturns. When it comes to diversification, while there may be some considerations involving ESG investing, the focus should be on achieving the desired target rate of return for retirement. Ultimately, think twice before making investment decisions that are too complex. Instead, focus on a simple and effective plan. The 60/40 portfolio may not be the only investment option, but it is still widely held and considered to be an effective strategy for long-term financial success.

Click here to download our eBook on “Buyer Beware: Why do they keep trying to sell you that annuity?”

TIMESTAMPS:

0:00 Intro

01:00 The 60/40 Portfolio and its Performance

11:15 The Performance and Complexity of Investing

24:21 Investing Strategy and Portfolio Changes

LINKS:

Learn more about Casey Smith and Andrew Pratt, CFA®.

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Learn more about A Wiser Retirement™ podcast and access previous episodes.

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By Published On: November 27, 2023

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