The once-dependable 60/40 portfolio has had a rough few years, but that doesn’t necessarily mean investors should count it out. The allocation of 60% stocks and 40% bonds typically provides less upside than an all-stock portfolio, but is expected to experience less of a decline during a market downturn. However, a recent analysis by Morningstar of 60/40 performance over the last century and a half found that in recent years it has done just the opposite. The bond and stock markets both tanked in 2022, for example. While equities recovered to their previous highs in September 2024, the bond market has not fully risen above water, wrote Emelia Fredlick, senior editor at Morningstar. “This decline was so severe that it prevented the 60/40 portfolio from returning to its previous high until June 2025—marking the only time in the past 150 years that the 60/40 portfolio experienced more pain than the stock market,” she said. Still, while stocks have been providing outsized returns, most investors shouldn’t skip bonds and go all in, said Christine Benz, director of personal finance and retirement planning at Morningstar. “There’s a little bit of recency bias. I hear it kind of creeping into thinking, where we haven’t had a really protracted drop in the stock market for quite a while, really since 2008, 2009,” she said. “It’s receding from memory what that feels like, and so investors are perhaps underrating the benefits of diversifying beyond that all-equity portfolio.” Pimco similarly believes a balanced, diversified allocation is one of the simplest ways to overcome behavioral biases, such as recency, overconfidence or fear and greed. For instance, an investor with a 60/40 portfolio who experiences a stock market drop would add equity risk, countercyclically, to rebalance back to the allocation, portfolio manager Erin Browne wrote in Pimco’s June 30 asset allocation outlook . “Rather than expending energy (and portfolio risk budget) on efforts to predict any particular outcome or to time shifts in the correlation patterns among asset classes, we believe investors should remain focused on the elements of investing that have not changed: diversification, balance, quality, flexibility, steady exposures to multiple sources of potential return, and careful risk management,” said Browne, who also leads asset allocation strategies, including Pimco’s multi-asset funds. Customizing allocations The best practice is to customize asset allocations based on life stage, when investors will need to pull spending money from the portfolio and personal risk tolerance, Benz said. Those in their 20s, 30s and 40s should have a heavier tilt towards equities, with those on the younger end even moving into the neighborhood of 80% to 90% in stocks, she said. That also means moving outside the U.S. and including international stocks, she noted. Once investors get closer to retirement, a 60/40 is a good starting point, Benz said. However, those actively spending from their portfolio — or who will soon start — should have a cash allocation as a buffer in case they do encounter a period of both falling stocks and bonds. “They should also have, I would argue, shorter-term bonds as well as inflation-protected bonds, because you want to make sure, especially as retirement draws close, that you are protecting yourself against those inflationary shocks,” Benz said. 30/70 is the new 40/60 Those who want to tailor their portfolio to take market and economic conditions into account can look at Vanguard’s time-vary asset allocation model , based on the money manager’s 10-year forecasts for returns. Once known as the 40/60 , these days it is 30% stocks and 70% fixed income thanks to the recent run higher in equities. The portfolio is overweight on fixed income, with the idea that higher bond yields can offer some cushion against moderate price increases. Yields, which move inversely to prices, have remained elevated this year. Equities, meanwhile, have become rich, which makes them more volatile, according to Vanguard senior investment strategist Todd Schlanger. “When you have high valuations, that can create a vulnerability that makes them more susceptible to experiencing declines when there is uncertainty,” Schlanger explained. The equity portion has its largest allocation in U.S. value stocks and its second largest allocation in developed markets outside the U.S. The largest portion of its fixed-income portfolio is in U.S. aggregate bonds, which provide diversification. The Bloomberg U.S. Aggregate Index includes investment-grade bonds such as Treasurys, corporate bonds and agency mortgage-backed securities. The model is meant to give directionality to investors, Schlanger said. “What they can expect is more or less lower returns from equities,” he said. “That implies a better risk-return trade-off of overweighting bonds, particularly because bonds have similar and, in some cases better, expected returns than equities with much less volatility.” Meanwhile, the classic 60/40 can still work for investors who want to maintain static exposure to the markets, without trying to follow the ins and outs of market conditions, Schlanger said. “The 60/40 has been … a consistent performer longer term,” he said. Including alternatives Then there are those who advocate including alternative investments, like private equity and private credit, to model portfolios. BlackRock CEO Larry Fink is perhaps the most notable . He wrote in a l etter to investors in April that the 60/40 “may no longer fully represent true diversification.” “The future standard portfolio may look more like 50/30/20 — stocks, bonds and private assets like real estate, infrastructure and private credit,” he wrote.
The 60/40 has had a painful ride, says Morningstar. What to consider now
