The classic 60/40 portfolio, where investments are split 60% in stocks and 40% in bonds, has taken a beating this year as both asset classes have plunged.
But now may be “precisely the wrong time to steer a new path” and abandon the balanced approach, according to a newsletter for Vanguard investors.
The Bloomberg index that tracks the 60/40 portfolio tumbled 17% in the first six months of the year, its deepest first-half dive since 1988, as rising inflation and interest rate hikes by the Federal Reserve sent bond prices into a tailspin at the same time as stocks plunged into a bear market.
Whether bonds will still work a hedge against stocks is currently a
If history is any guide, the 60/40 portfolio could be set for a big gain in the back half of the year, according to research by the
The newsletter’s research director, Jeffrey DeMaso, calculated all six-month returns for the investing approach going back to 1945 and identified every period with a 10% or greater decline. That left DeMaso with 15 of those periods, not counting the first half of 2022.
On average, the 60/40 portfolio gained 10% over the following six months and was negative only once, the newsletter found. “Over 12 months, the 60/40 portfolio was higher every single time, with an average return of 18.4%.”