Sixty-Forty
Over the ages there have been many different investment practices and strategies that have worked and not worked. One of the most well-known and interesting, however, has been the 60/40 investment rule, which stipulates that a portfolio should have a mix of 60% stocks and 40% bonds. So, why’s it so popular? Well, over the past half a century, the 60/40 portfolio generated negative returns through a rolling five-year period just once, which is an incredibly low rate of failure.
In all other five-year periods since 1976, a 60/40 investor enjoyed positive returns. Today, however, the portfolio balance isn’t doing so hot. As a result, the average 60/40 portfolio is struggling with its position being down 16.9% this year through June 30. If this poor performance continues, it would rank only behind two depression-era downturns, in 1931 and 1937, which each saw losses topping 20%.
The reason behind this poor performance seems to be the correlation between bonds and stocks, which has increased about 0.6% in the past year, which is still relatively low compared with other equity asset classes. There doesn’t seem to be many alternatives to the 60/40 rule though and its failure seems more broadly attributable to a general trend of inferior performance in the overall market.
What do you think about the lack of performance in the 60/40 rule?
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.
