The Death of the 60/40 Portfolio? | The Informed Investor 30

Episode 30: If a traditional investment portfolio with 60% stocks and 40% bonds has a down year, should you abandon this approach? Plenty of investors were probably asking that question in 2022, when the Russell 3000 Index plunged 19.2% and the Bloomberg US Aggregate Bond Index tumbled 13.0%. (Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes; Bloomberg data from Bloomberg.) Relying on a balanced portfolio for reasonable returns and reduced risk didn’t work. But 2022 was the quintessential outlier—a data point that lies outside the mainstream in a particular dataset. History shows that 2022 was the only year from 1979 through 2025 that both US stocks and US bonds posted negative returns. All told, US bonds suffered five down years and US stocks eight in that 47-year period. The rest of the time they delivered gains. The blend of stocks and bonds that’s right for you—60/40, 80/20, 30/70, etc.—will depend on your goals and your time horizon, and it might change over time. However, we believe critics of the traditional 60/40 mix are arguably misguided if they think it’s no longer relevant, particularly as a tool for mitigating risk. To wit: From 1986 through 2025, the amount of volatility reduction investors gained from adding 40% bonds to their portfolio was stable through time even though the correlation between stocks and bonds varied widely. In Episode 30 of The Informed Investor, Dimensional’s Mark Gochnour, Head of Global Client Services, Wes Crill, PhD, Senior Client Solutions Director, and Jake DeKinder, Head of Client Communications, consider the arguments for and against the 60/40 portfolio and explain why popular alternatives may not get investors where they want to go. Past performance is not a guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Risks include loss of principal and fluctuating value. Diversification does not eliminate the risk of market loss. TIME STAMPS 00:00 Intro 00:23 Headlines 01:59 Origins of 60/40 portfolio 03:10 60/40 portfolios, diversification, and asset allocation 03:37 Impact of fixed income on portfolio volatility 04:20 Purposes of fixed income allocations 05:49 Calendar-year returns of stocks and bonds 07:42 Bonds are not risk-free 07:59 Alternatives to 60/40 portfolios 09:13 Correlation between stocks and bonds 10:50 How investors should think about outliers 11:45 Key takeaways LINKS FROM TODAY’S EPISODE: The Informed Investor Feedback Survey https://www.dimensional.com/us-en/inf... The Informed Investor, Episode 26, “Will You Be OK If Stocks Stumble?”    • Will You Be OK If Stocks Stumble? | The In...   The Informed Investor, Episode 9, “How Do You Protect Against Market Drops?”    • How Do You Protect Against Market Drops? |...   The Informed Investor on YouTube    • The Informed Investor   Dimensional Fund Advisors Shorts on YouTube    / @dimensionalfundadvisors   Mark Gochnour on LinkedIn   / mark-gochnour-9a23598a   Wes Crill on LinkedIn   / wes-crill-77a49417   Jake DeKinder on LinkedIn   / jake-d-4105b98   Learn more at https://www.dimensional.com/ #6040portfolio #balancedportfolios #stockbondmix #russell3000 #bloombergagg #usaggregatebondindex #riskparity #stockbondcorrelation #60percentstocks #stockbondcorrelation #valuepremium #assetallocation #meanvariance #dimensionalfundadvisors #dimensional #dfa