January 13, 2024

A common argument in favor of the 60/40 portfolio is that when stocks have a bad year, bonds usually do better and that helps offset the losses from the stocks. Yet, the across the across-the-board double-digit decline in returns during 2022 led many to conclude that there was no place to hide. A result that led many to declare that the 60/40 portfolio had outlived its usefulness. Issues and concerning the applicability of the 60/40 strategy were summarized in a front-page article in the Wall Street Journal penned by Akane Otani and Karen Langley titled: The Classic 60-40 Investment Strategy Falls Apart. ‘There’s No Place to Hide.’, with the headline reading: A savings mix of stocks and bonds has helped offset losses in previous years—but not this one. The authors conveyed the arguments against the 60/40 allocation. That the strategy failed as a capital preservation strategy. That it did not protect during the 2022 downdraft. The implicit assumption of many people and analysts being that the strategy only works when there is a negative correlation between the two asset classes. But is that the case?

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