The 60/40 portfolio “is certainly not dead,” says a senior wealth advisor

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The 60/40 portfolio – a cornerstone strategy for the average investor – has been weighed down by pandemic-era economics and market dynamics.

“However, the 60/40 portfolio is certainly not dead,” Holly Newman Kroft, managing director and senior wealth advisor at asset manager Neuberger Berman, said Thursday at the semi-annual CNBC Financial Advisor Summit.

Although it is not dead yet, “it needs to be modernized,” she added.

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What is a 60/40 portfolio?

The strategy invests 60% in stocks and 40% in bonds – a traditional portfolio that carries moderate risk.

More broadly, “60/40” is a shorthand of sorts for the broader topic of investment diversification.

Bonds are thought to act as ballast when stocks – the growth engine of a portfolio – perform poorly because they often do not move in lockstep.

Generally, the classic 60/40 mix is ​​considered to include US stocks and investment grade bonds such as US Treasuries and high-quality corporate bonds.

Why the 60/40 Portfolio is Stressed

By 2021, the 60/40 portfolio had performed well for investors.

Investors achieved higher returns than those with more complex strategies in each recent three-year period from mid-2009 to December 2021, according to a study analysis Written last year by Amy Arnott, portfolio strategist at Morningstar.

However, things have changed.

In 2022, inflation skyrocketed, reaching a peak not seen in four decades. In response, the Federal Reserve aggressively raised interest rates, hurting stocks and bonds.

Bonds have historically served as a shock absorber in a 60/40 portfolio when stocks decline. But this defense mechanism has broken down.

How to rethink the 60/40

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