KEY TAKEAWAYS
06 July 2025
- A 60/40 portfolio allocates 60% to equities and 40% to bonds, aiming to balance growth potential with income and stability.
- Historically, a hypothetical 60/40 portfolio has shown resilience, delivering positive returns in 15 of the past 20 calendar years.
- Bonds have helped cushion losses during equity market downturns, providing diversification benefits. Investors should note that diversification benefits may diminish in certain market conditions.
- A 60/40 portfolio requires regular rebalancing to maintain its intended risk-return profile, and investors should evaluate if the allocation aligns with their goals.
If you’ve ever felt anxious checking your investments during a market dip, you’re not alone. Staying invested through ups and downs requires an informed perspective and strategy. One approach that has helped investors stay the course is the 60/40 portfolio – an investment approach that can potentially offer both resilience and returns.
For technical terms, please refer to our Glossary
What is a 60/40 portfolio?
Often called the classic balanced portfolio, a 60/40 portfolio is an asset allocation strategy that splits 60% of investments into stocks (equities) and 40% into bonds (fixed income). The 60/40 split between equities and fixed income has been a mainstay in the investment world ever since economist Harry Markowitz published his groundbreaking research on portfolio construction in 1952¹.
In theory, stocks have higher growth potential, while bonds can offer better stability and income. Within this framework, equities serve as the primary engine of growth, like the sail that propels a vessel forward. On the other hand, fixed income acts as a ballast, seeking to provide diversification benefits when market conditions are volatile.
What are the potential benefits of a 60/40 portfolio?
By combining the two types of investments into a single portfolio, a 60/40 portfolio aims to capture the best of both worlds by balancing risk and reward, much like how a balanced diet can help achieve healthy outcomes in a sustainable manner. Data analysis can help support the case for investment in a balanced portfolio:
1. Has shown consistent results over the long-term
Example of a hypothetical 60/40 portfolio:
· 60% Equities: MSCI All Country World Index
· 40% Bonds: Bloomberg Global Aggregate Total Return Index
Historical calendar year returns for a hypothetical 60/40 portfolio²
Hypothetical example shown for illustrative purposes only. Investors cannot invest directly in an index. Indexes are unmanaged and therefore have no fees. Past results are not a guarantee of future results.
2. Results in USD terms from 1 January 2005 to 31 December 2024 based on a hypothetical investment in 60% MSCI All Country World Index (net dividends reinvested), 40% Bloomberg Global Aggregate Total Return Index, rebalanced monthly.
The chart above shows that a hypothetical 60/40 portfolio generated positive returns in 15 out of the past 20 calendar years. Most importantly, in the five years where returns were in negative territory, only two (2008 and 2022) were double-digit declines. 2008 was marked by the Global Financial Crisis, where systemic failures in the banking sector caused a severe market downturn. Meanwhile, 2022 was a rare year when both equities and bonds declined together, as central banks rapidly increased interest rates to combat inflation.
Our analysis also revealed a pattern: calendar years of negative results have typically been followed by calendar years of strong positive results - a testament to the long-term historical resilience of 60/40 portfolios. It’s a bit like the tortoise in the fable – it wasn't the fastest moving strategy during the booming years, but steadily moved forward, persisting even after the going got tough.
2. Has displayed downside resilience during market corrections
Average US equity and fixed income returns (%) during past equity market corrections³ (2010 – 2023)
For illustrative purposes only. Past results are not a guarantee of future results.
3. As at 31 December 2024. Sources: Capital Group, Morningstar.
Equity returns are represented by the S&P 500 Index and fixed income returns are represented by the Bloomberg US Aggregate Index. Averages were calculated by using the cumulative total returns of the S&P 500 Index and the Bloomberg US Aggregate Index during the nine equity market correction periods since 2010: 23 April 2010 to 2 July 2010, 29 April 2011 to 3 October 2011, 21 May 2015 to 25 August 2015, 3 November 2015 to 11 February 2016, 26 January 2018 to 8 February 2018, 20 September 2018 to 24 December 2018, 19 February 2020 to 23 March 2020, 3 January 2022 to 12 October 2022, and 31 July 2023 to 27 October 2023. Corrections are based on price declines of 10% or more (without dividends reinvested) in the S&P 500 Index, with at least 75% recovery.
Periods of market volatility often serve as a reminder of the importance of investment strategies that seek to balance long-term capital growth and capital preservation.
By design, a 60/40 mix generally isn't expected to drop as drastically as a pure equity portfolio during market downturns. If stock prices plunge during a recession or a crisis, the bond allocation can potentially offset some of those losses by holding or even gaining in value. As the illustration above shows, while equities have tended to plunge quickly during market downturns, fixed income has tended to remain more buoyant — having offered stronger average returns during market downturns.
What are the potential drawbacks of a 60/40 portfolio?
While the 60/40 portfolio looks appealing based on historical returns, it is, however, essential for investors to understand its limitations in order to make an informed investment decision.
1. Changing market dynamics
The 60/40 portfolio is built on the concept of diversification, which depends on the inverse (traditionally opposite) relationship between equity and fixed income returns. However, this relationship can potentially break down in difficult market environments.
As mentioned above, the 60/40 portfolio faced a challenging period in 2022. Rising inflation, a number of rapid interest rate hikes, and geopolitical uncertainty created a perfect storm that disrupted the traditional diversification benefits that fixed income has often offered. This led some investors to question whether the 60/40 strategy had lost its edge. Given this context, investors should always consider their willingness to stay invested when markets are declining.
2. Alignment with investor goals
A traditional 60/40 balanced investment approach may not match every investor’s objective. For example, those who have a bigger risk appetite may prefer more growth-oriented asset allocation, while those with a shorter time horizon may prefer to target more income or capital preservation. Ultimately, it is crucial for investors to evaluate their individual risk appetite, time horizon, and financial goals to determine if a 60/40 allocation aligns with their needs.
3. Requires regular rebalancing
To retain the intended risk-return profile, a 60/40 portfolio must be ‘rebalanced’ periodically. Typically, this is done by trimming positions that have grown and adding to those that have lagged. Without rebalancing, the asset mix may change over time, potentially increasing risk, or reducing returns. If rebalancing your own investments feels overwhelming, a simpler way to invest may be through an actively managed 60/40 fund, whereby the fund manager takes responsibility for rebalancing decisions.
Why the 60/40 portfolio still matters
Despite limitations and potential challenges along the journey, the case for a balanced 60/40 approach still appears strong. Over decades, the balanced portfolio has shown an ability to offer downside resilience during times of volatility. In an environment that may continue to be marked by price swings and more modest returns, staying anchored to a disciplined, long-term strategy could help navigate uncertainty.