Is the 60/40 Portfolio Still Relevant?
The 60/40 investment strategy advises investors to place 60% of their portfolio in equities and 40% into bonds and other fixed-income investments. The strategy offers high growth potential through the market while offering stability through the assumed safety net that comes with a fixed-income product. [1] The strategy worked under the assumption that stock and bond markets would not take a dive at the same time, allowing for mitigated risk and long-term growth potential. But in 2022, things didn’t go as planned. As both the stock and bond markets dipped at the same time, the validity of the 60/40 method came into question.
Stock Market Instability
The stock market thrives under low inflation and low interest rates. Unfortunately, neither were a part of 2022 as both skyrocketed. Inflation hit a 40-year high and interest rates were raised six separate times by the Federal Reserve. [2] The stock market fell by nearly 23% last year, leaving portfolios with a 60/40 strategy with big losses. [3]
Bond values typically rise when a recession occurs and markets go down, spurring investment back into the economy. They’ve also risen in value under the same economic factors that allowed for the market to balloon: low inflation and low interest rates. Since 2016, and especially in 2018 when negative yields were incurred, bonds have begun offering lower returns. [4] The pandemic was beginning to change these outcomes, but then increased inflation and interest rates sent the bond market on a downward trend similar to that of the stock market. Down 14% in 2022, bonds once again lost value. The 60/40 strategy’s safety net has begun to look a lot less safe, and the impacts on individuals’ retirement accounts will continue to be felt.
Last year left retirees and future retirees second-guessing the investment strategies they have been using to prepare for their future. Getting a second opinion from a financial professional may give you the peace of mind you need to ride out any further market volatility. To schedule a complimentary financial review with Moore’s Wealth Management, click here or call our office at 770-535-5000, where a staff-member is awaiting your call Monday through Friday, 9AM to 5PM.
This material is provided as a courtesy and for educational purposes only. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.
A bond is a fixed-income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental). A bond could be thought of as an I.O.U. between the lender and borrower that includes the details of the loan and its payments. Bonds are used by companies, municipalities, states, and sovereign governments to finance projects and operations. Owners of bonds are debtholders, or creditors, of the issuer.
