Is the 60/40 Portfolio Dead?

Over the last decade, there have been many proclamations that the traditional 60/40 portfolio is dead, mainly due to the fact that bonds were supposedly overvalued and yields couldn’t go any lower. This article from Ben Carlson highlights that while a 60/40 portfolio has delivered outstanding returns as a result of falling real interest rates due to disinflationary pressures over the last forty years, one can’t say with certainty that a 60/40 portfolio is indeed dead just because it’s unlikely investors will experience similar returns in the future. Carlson analyzes the forty year period of 1940-1979, where inflation was higher by 1 percent on an annualized basis, to illustrate that a 60/40 portfolio can provide “decent returns” in a period that experiences inflation – just not as good as what the past forty years has delivered. The important takeaway from this article is that investors need to make sure their future return expectations are more aligned with reality, understanding that the return of a static 60/40 portfolio is not something that is likely achievable on a go-forward basis. We would also add that investors may want to analyze how other asset classes like inflation-linked bonds and commodities could help to bulletproof their portfolios, guarding against a scenario where the trend of disinflation starts to reverse.