The 60/40 Portfolio: Is It Still Relevant?
After a brutal 2022, headlines pronounced the 60/40 portfolio dead. The data tells a more nuanced story about why this classic balance still earns its place.
Don't have time? Here's what you need to know:
- 160/40 holds 60% stocks for growth and 40% bonds for ballast; it is the industry's default balanced portfolio.
- 22022 broke the mix because an inflation-and-rate shock pushed stocks and bonds down together, an uncommon scenario.
- 3Higher post-2022 bond yields have improved 60/40's forward outlook, giving the bond sleeve more income and rally potential.
- 4Build it with VTI and BND (add VXUS for international) and rebalance roughly once a year.
What the 60/40 Portfolio Is and Why It Endured
The 60/40 portfolio holds 60% in stocks and 40% in bonds. It is the default balanced portfolio of the investment industry, the benchmark against which countless pension funds and target-date strategies are measured. The appeal is simple: the 60% in stocks drives long-term growth, while the 40% in bonds cushions the ride and provides ballast during stock-market downturns.
For decades the formula worked beautifully. From the early 1980s through 2021, falling interest rates lifted bond prices while stocks compounded, so 60/40 delivered strong returns with much smaller drawdowns than an all-stock portfolio. It became shorthand for sensible, hands-off investing, and you can replicate it today with two funds, VTI for stocks and BND for bonds.
What Went Wrong in 2022
2022 was one of the worst years on record for the 60/40 portfolio. Surging inflation forced central banks to raise interest rates rapidly, and because bond prices fall when rates rise, bonds dropped sharply at the same time stocks were falling. The diversification that normally protects a 60/40 investor failed, both sleeves declined together, and the portfolio posted a double-digit loss.
That shared decline triggered a wave of 'the 60/40 is dead' headlines. But it is worth understanding why it happened: 2022 was an inflation-and-rate shock, the one environment in which stocks and bonds tend to fall together. In the far more common recession or growth-scare scenario, bonds still tend to rally as stocks fall. The 2022 episode was a real risk made visible, not proof that the strategy is broken.
Important: The 60/40 mix protects against recession and stock-market panics, not against an inflation shock that drives up interest rates. No single static mix is immune to every environment.
Is 60/40 Still Relevant Today?
Ironically, the 2022 reset arguably made 60/40 more attractive going forward, not less. After rates rose, the bond sleeve now yields far more than it did during the near-zero years, which means bonds again offer both meaningful income and more room to rally if the economy weakens. The starting yield on bonds is one of the best predictors of their future return, and higher yields are good news for the 40% side.
For an investor who wants a single, durable, hands-off allocation with moderate risk, 60/40 remains a perfectly reasonable choice. It is not optimal for everyone, a 25-year-old should hold more stocks, and a retiree worried about inflation might add a small commodity or gold sleeve, but the core logic of balancing growth and ballast is as sound as ever.
Tip: If you like the 60/40 philosophy but want inflation insurance, some investors add a small sleeve of inflation-protected bonds or gold to address the one scenario where stocks and bonds fall together.
Ready to invest? Open an IBKR account in 10 minutes and get free stock. $0 commissions on US ETFs • Fractional shares from $1 • 150+ global markets.
Building It and Common Variations
The simplest build is two funds: 60% in a total-stock fund and 40% in a total-bond fund. Most investors improve on the pure domestic version by splitting the stock sleeve between U.S. and international, for example 40% VTI, 20% VXUS, and 40% BND. That adds global diversification without changing the headline 60/40 balance.
Variations abound. A more aggressive investor might run 70/30 or 80/20; a conservative one, 50/50 or 40/60. Some split the bond sleeve across durations or add a slice of inflation-protected bonds. Whatever variant you choose, rebalance roughly once a year to keep the mix from drifting as markets move, which also enforces a disciplined buy-low, sell-high habit.
| Variant | Stocks | Bonds | Best for |
|---|---|---|---|
| Aggressive 80/20 | 80% | 20% | Younger, longer horizon |
| Classic 60/40 | 60% | 40% | Balanced, moderate risk |
| Conservative 40/60 | 40% | 60% | Near or in retirement |
Frequently Asked Questions
Is the 60/40 portfolio dead?
No. The 'death of 60/40' narrative came from 2022, when an unusual inflation-and-rate shock pushed both stocks and bonds down together. That environment is the exception, not the rule. In the more common recession or growth-scare scenario, bonds still tend to rise as stocks fall. Higher bond yields after 2022 have actually improved the outlook for the strategy.
What returns can I expect from a 60/40 portfolio?
Historically, balanced portfolios in the 60/40 range have produced solid long-term returns with meaningfully lower volatility than an all-stock portfolio, though specific decades vary widely. No one can promise a future figure, and expected returns shift with starting valuations and bond yields. The point of 60/40 is a smoother ride, not maximum return; an all-stock portfolio has historically earned more but with much deeper drawdowns.
Who should use a 60/40 portfolio?
It suits investors who want a balanced, hands-off allocation with moderate risk, often mid-career savers or those a decade or so from retirement. Younger investors with long horizons typically hold more stocks, such as 80/20 or 90/10, while those already in retirement may prefer something more conservative. The right mix depends on your time horizon and tolerance for losses.
How do I build a 60/40 portfolio with ETFs?
The simplest version is 60% in a total-stock fund like VTI and 40% in a total-bond fund like BND. A common improvement is to split the equity sleeve between U.S. and international, for example 40% VTI, 20% VXUS, and 40% BND. Rebalance about once a year to keep the allocation on target.
Further Reading
Free Tools
Alex Harrington
CFA Level II Candidate, Finance & Economics
Alex Harrington is an independent ETF researcher and personal finance writer with over 8 years of experience analyzing exchange-traded funds. A CFA Level II candidate with a background in economics, Alex has reviewed 800+ ETFs and helped thousands of beginners build their first investment portfolios through clear, jargon-free education.
This content is for educational purposes only and does not constitute financial advice. Past performance does not guarantee future results. Consult a licensed financial advisor before making investment decisions.