Why America’s Once-Beloved 60/40 Strategy Remains Loaded With Peril

‍The traditional 60/40 investment portfolio, a staple of American retirement planning, has been taking a beating since the start of 2022. Incredibly, even during a bearish market, this supposedly moderate-risk portfolio has underperformed compared to the S&P 500. This unexpected phenomenon can be traced back to the peculiar economic conditions we’ve witnessed over the past two years.

The rapid rise in rates has devastated the 40% bond allocation of the 60/40 portfolio. The Vanguard Total Bond Market Index Fund ETF is down more than -15% since January of 2022. Simultaneously, the stock market has also experienced losses with the Vanguard Total Stock Market ETF down -13% over the same period. To have bond losses almost as severe as stock losses has taken investors by surprise. The warning for 60/40 investors is that with a highly probable recession looming stocks could fall much further from here with little to no support from bonds as would be historically expected.