Due to last year’s poor market returns, you’ve probably seen the headlines that the 60/40 portfolio is dead. But is that really the case?

This week’s retirement headline explores the history of this classic retirement investment strategy. After we tackle the headlines, Bret and I team up to consider the best places to move in retirement. Listen in to hear where not to move.

Outline of This Episode

  • [1:52] A history of the 60/40 portfolio
  • [8:09] Why I like 60/40
  • [15:10] Where should retirees consider moving to for a great retirement?

What is the 60/40 portfolio?

The 60/40 portfolio has long been a staple for investors seeking a balanced approach to wealth preservation and distribution in retirement. The portfolio contains about 60% stocks and 40% bonds.

While we refer to the strategy as the 60/40 portfolio, it is important to note that most investors don’t strictly adhere to those proportions. 60/40 generally means that the investor maintains a diversified portfolio comprised of multiple asset classes.

The 60% is made up of a global allocation of large, mid-cap, and small-cap stocks with some international funds usually using an index fund or ETF. Whether they are growth or value-oriented depends on the investor.

The 40% bond portion is what often comes under fire from growth-driven investors. However, having a strong portion of bonds ensures that you won’t have to sell your stocks before you’re ready.

The recent performance of the 60/40 should be taken into context

The 60/40 approach has come under fire recently due to its poor performance in 2022. Just like everything else in investing, it is important to look at its performance within the bigger picture. Every investment strategy experiences periods of low performance due to fluctuations in market conditions so looking at a strategy based on a single-year performance overlooks the long-term track record.

While 2022 was the third worst year on record for the 60/40 portfolio it doesn’t mean that one should jump into a more complex portfolio–those usually just incur higher fees.

My thoughts about the 60/40 portfolio

The beauty of the 60/40 lies in its simplicity and straightforward framework for diversification. I like the fact that it breaks down the math into easy palatable chunks. 40% of bonds equates to 10 years of cash flow if you work from a 4% distribution.

Additionally, keeping 60% allocated for stocks ensures that you stay ahead of inflation. Spending the front end of the portfolio that is stacked with bonds and cash ensures that your back end allows for growth and income.

Ignore the clickbait headlines; keep your investing long-term, low-cost, and diversified. Don’t allow one bad market cycle to spoil a strong, proven market strategy.

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