In my own investing experience, my first mentor recommended the Vanguard STAR fund, which has a similar allocation. After a year of solid S&P growth, that portfolio only grew in the low single digits in comparison, so I sold it and started managing it myself.

What Is a 60/40 Portfolio?

A traditional 60/40 portfolio allocates 60% of assets to stocks (typically index funds tracking the broader market) and 40% to bonds or fixed-income securities. The strategy aims to balance growth potential with income and stability:

• The 60% stock allocation provides growth potential and inflation protection

• The 40% bond allocation offers income, reduced volatility, and some protection during market downturns

This allocation became popular because it historically delivered solid returns while dampening the wild swings of an all-stock portfolio.

The Comeback Story Vanguard Is Telling

Vanguard, one of the biggest champions of the 60/40 portfolio, makes a compelling case for it even today. In their October 2024 article, they emphasize that despite a painful 16% decline in 2022, the global 60/40 portfolio has rebounded sharply with a 29.7% cumulative return since then.

Todd Schlanger, a senior investment strategist at Vanguard, notes that "the long-term track record of the 60/40 has been consistently strong." Looking at 10-year rolling returns since 1997, the 60/40 portfolio has delivered an average annualized return of 6.8%, with most periods falling between 5.6% and 7.6%.

Vanguard attributes this consistency to diversification, showing how the 60/40 mix typically lands in the middle of the performance spectrum among various market segments each year. They argue this moderate positioning compounds into competitive long-term results.

Beyond the Marketing: What Other Experts Say

While Vanguard remains bullish on the 60/40 portfolio, other respected voices in finance have raised serious concerns about its continued effectiveness.

According to Investopedia, financial strategist Bob Rice of Tangent Capital has predicted that a 60/40 portfolio would only grow by about 2.2% per year going forward—far below historical averages. He cited several new challenges:

• Historically high equity valuations

• Unprecedented monetary policies

• Increased risks in bond funds

• Low commodity prices

• Technology disruption across industries

As Rice put it: "The things that drove 60/40 portfolios to work are broken... It was convenient, it was easy, and it's over."

Yale University's endowment fund—one of the most successful institutional investors—seems to agree with this assessment. They currently allocate just 5% to stocks and 6% to bonds, with the remaining 89% in alternative investments.

The Fundamental Problems with 60/40 Today

1. Bond Yields Don't Offer Enough Income

For much of the 2010s and early 2020s, bond yields were at historic lows, making the 40% allocation less effective at generating income. While rates have risen since 2022, investors who built 60/40 portfolios during the low-rate era may have underperformed a more stock-heavy allocation.

2. Bonds No Longer Provide the Same Diversification Benefit

One of the core assumptions of the 60/40 portfolio is that bonds and stocks typically move in opposite directions, especially during market stress. However, this relationship has weakened in recent years, with bonds sometimes selling off alongside stocks during market downturns—as seen dramatically in 2022.

3. Longer Life Expectancies Require More Growth

Americans are living longer than ever, meaning retirement funds need to last longer too. The conservative nature of a 60/40 portfolio may not generate enough growth to fund a 30+ year retirement, especially when factoring in healthcare costs that typically outpace inflation.

4. No Exposure to Alternative Assets

The traditional 60/40 model doesn't account for alternative investments like real estate, private equity, commodities, or digital assets. In our global economy, these other options can provide both diversification and growth opportunities that stocks and bonds alone cannot.

Who Should Still Consider a 60/40 Portfolio?

Despite its limitations, the 60/40 portfolio isn't completely obsolete. It may still be appropriate for:

• Near-retirees or recent retirees who need more stability and less volatility as they begin withdrawing funds

• Extremely risk-averse investors who prefer capital preservation over growth

• Those with substantial assets who can afford lower returns in exchange for potentially reduced volatility

Better Alternatives for Most Investors

For many—if not most—investors, alternatives to the traditional 60/40 approach may deliver better results:

1. Age-Based Asset Allocation

Rather than a fixed 60/40 split for everyone, Schwab and other firms recommend adjusting your stock/bond allocation based on your age and goals.

Schwab's simplified framework suggests:

• Aggressive investors (typically younger): 95% stocks, 5% cash

• Moderate investors (mid-career): 60% stocks, 35% bonds, 5% cash

• Conservative investors (near or in retirement): 20% stocks, 50% bonds, 30% cash

T. Rowe Price takes a similar approach, recommending higher equity allocations for younger investors that gradually decrease with age—though they still advise maintaining significant stock exposure even in retirement.

2. Expanded Asset Allocation Models

Alex Shahidi, managing director at Evoke Advisors, proposes what he calls an "e-balanced" portfolio comprising:

• 30% Treasury bonds

• 30% Treasury Inflation-Protected Securities (TIPS)

• 20% equities

• 20% commodities

According to Shahidi's research, this allocation delivers similar returns to the 60/40 portfolio but with significantly less volatility, as it works across different economic cycles.

3. Higher Equity Allocations for Long-Term Investors

Warren Buffett, Dave Ramsey, and other prominent financial voices often recommend higher equity allocations—particularly in low-cost index funds that track the S&P 500. For younger investors with decades until retirement, a portfolio more heavily weighted toward stocks (potentially 80-100%) may generate substantially more wealth over time.

When the legendary Jack Bogle (founder of Vanguard) was asked about his own portfolio late in life, he revealed it was closer to 50/50 than 60/40—but also noted that most investors should probably have more in stocks than he did, given his advanced age.

The Truth About Bonds: Who Really Needs Them?

Bonds have traditionally been viewed as essential portfolio components, but they have different purposes that might not work with every investor's goals:

Bonds Make Sense For:

• Income-focused investors who need regular cash flow

• Those near or in retirement who need capital preservation

• High-net-worth people who use them for tax planning

• Institutional investors employing them for liability matching

• Sophisticated investors using them as hedges against specific risks

Bonds May Be Less Suitable For:

• Young to middle-aged investors focused on long-term growth

• Those already struggling to save enough for retirement who need higher returns

• Investors with guaranteed income (pensions, Social Security) that already provide bond-like stability

Building a Portfolio That Actually Works for You

Instead of blindly following the 60/40 rule, consider these principles for building a truly effective portfolio:

1. Start with Your Goals, Not a Formula

Different financial goals require different approaches. Saving for retirement in 30 years is fundamentally different from funding a child's education in 10 years.

2. Consider Your True Time Horizon

Many investors underestimate their actual investment time horizon. Even at retirement, most people need their money to last 20-30+ years, suggesting a need for continued growth through a significant equity allocation.

3. Assess Your Actual Risk Tolerance

Risk tolerance isn't just about how you feel during market downturns—it's about whether your portfolio can achieve your goals. Sometimes the "riskier" choice is actually playing it too safe and failing to generate needed returns.

4. Expand Beyond the Stock/Bond Binary

Consider diversifying into other asset classes like real estate, commodities, inflation-protected securities, or even a small allocation to alternative investments if appropriate.

5. Revisit and Readjust Regularly

Your portfolio is a living thing that needs to evolve with changing market conditions and your personal circumstances. Regular reviews (at least annually) ensure your allocation remains appropriate.

The Bottom Line

The 60/40 portfolio isn't necessarily "bad"—it's just not the universal solution that some financial institutions continue to present it as. For many investors, especially younger ones with long time horizons, this conservative allocation may unnecessarily limit your growth potential and jeopardize long-term financial goals.

Vanguard and other proponents of the 60/40 portfolio aren't wrong about its historical performance or relative stability. Remember, past performance doesn't guarantee future results, and today's market environment creates different challenges that may require different solutions.

The most effective portfolio isn't the one that follows a rigid formula—it's the one that's deliberately constructed to meet your specific goals, timeline, and risk tolerance. For many Americans focused on building wealth for retirement, that likely means a more significant allocation to equities than the traditional 60/40 model suggests.

Remember that your portfolio should work for you, not the other way around. The best investment strategy is one you can stick with through market turbulence while still meeting your long-term financial objectives.

Frequently Asked Questions

Is a 60/40 portfolio too conservative for younger investors?

In most cases, yes. Younger investors (typically those more than 15-20 years from retirement) generally benefit from higher equity allocations to maximize long-term growth. Many financial advisors recommend that younger investors consider allocations with 80% or more in stocks.

How did the 60/40 portfolio perform during the 2022 downturn?

Poorly. In 2022, a global 60/40 portfolio declined approximately 16% as both stocks and bonds fell simultaneously. This performance highlighted one of the key risks of the strategy: when the traditional negative correlation between stocks and bonds breaks down, the diversification benefit diminishes.

What alternatives should I consider instead of bonds in a portfolio?

Depending on your goals, alternatives might include Treasury Inflation-Protected Securities (TIPS), real estate investment trusts (REITs), dividend-focused equity funds, annuities (for those near retirement), or even alternative investments like private equity or commodities for qualified investors.

Do any major investors still recommend the 60/40 portfolio?

Yes, Vanguard continues to advocate the 60/40 portfolio for many investors. However, even traditional financial institutions realize the need for hands-on help based on your circumstances instead of one-size-fits-all allocations.