The 60/40 portfolio recently passed its first real test since the 2022 bond market rout, according to Morningstar. During the stock market sell-off in the first week of August, high-quality bonds did what they are supposed to do — play defense, said Jason Kephart, director of multi-asset ratings at Morningstar. The Morningstar U.
S. Market Index, a yardstick for stocks, dropped 6.3% from Aug.
1 through Aug. 5, its worst five-day performance since June 2022. Meanwhile, the Morningstar U.
S. Core Bond Index rose 1.5% as investors fled to safety.
"Inflation wasn't the reason we were seeing this big stock market sell-off," Kephart explained. "When inflation is not the problem, we are seeing bonds perform as they used to." "It was beautiful," he added.
The strategy revolves around a simple balanced portfolio in which 60% gets allocated to stocks and 40% to fixed income. Traditionally, stocks and bonds move in opposite directions, which helps lower the volatility of the portfolio. However in 2022, both stocks and bonds nosedived when the Federal Reserve started hiking interest rates to fight inflation.
The iShares Core Growth Allocation ETF (AOR) that mimics the 60/40 portfolio sank 17.4% that year. AOR 1Y mountain The iShares Core Growth Allocation ETF mimics the 60/40 portfolio Since then, the strategy has been making a comeback.
The 60/40 portfolio has posted a 20.5% cumulative return since 2022 as of May 2024, according to Vanguard. Even with the 2022 rout, it has a 6.
2% annual.