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VIEWPOINT: The Death of the 60-40 Portfolio has been Exaggerated

By Kenneth J. Entenmann


The financial markets are off to a rough start in 2022. Through May 31, the S&P 500 equity index posted a -12.21 percent return while the Aggregate Bond Index returned -8.47 percent. So much for diversification. Simple math shows that the classic 60-40 asset-allocation portfolio’s return is a poor -10.74 percent. Many are using this negative return to declare the death of the 60/40 portfolio.

However, this conclusion requires an old-school definition of 60/40, consisting of just large-cap stocks (S&P 500) and investment-grade bonds (Aggregate Bond Index). A more modern 60-40 portfolio is far more diversified than that simple version. The 60 percent is not just equities but also includes other “risk assets.” The modern 60 percent includes asset classes such as mid cap and small cap domestic equities and developed and emerging international equites. Through May, the MSCI EAFE index, which measures developed international equities, has returned -10.24 percent compared to the S&P 500’s -12.21 percent. While still negative, the loss is smaller. Importantly, it also includes inflation-hedging asset classes such as global real estate, infrastructure, and commodities. Similarly, the 40 percent fixed-income portion is also more diversified than just investment-grade bonds. Today, it includes additional asset classes, such as inflation-protected bonds, international bonds, and high-yield bonds. Lastly, for larger portfolios, allocations to “alternative” asset classes — such as hedge funds, private equity, and venture capital — help to further diversify risk and enhance return over time.

Declaring the death of the 60/40 portfolio based on a poor 5-month return is shortsighted. This conclusion assumes the only purpose of an investment portfolio is maximizing return, particularly short-term return. Clearly, returns are important, but they should be measured in years, not months. And there are other benefits to consider.

For long-term investors, hedging against inflation and income generation should be equally important to returns. For example, over the last decade, many investors questioned the need to hedge inflation. For much of the decade, inflation was running well below 2 percent. Why bother hedging non-existent inflation? Inflation-hedging assets only detracted from returns over the decade. Today, the Consumer Price Index (CPI) is running at 8.3 percent and investors who stuck with their inflation-hedging asset classes are benefiting now. In addition, inflation-hedging asset classes like real estate and infrastructure have the added benefit of generating substantially higher streams of income than most other asset classes. While the S&P 500 and the Aggregate Bond Index yield 1.4 percent and 2.9 percent, respectively, the yield on broadly diversified real estate and infrastructure is roughly 4 percent and 5.25 percent respectively. For investors in need of income — think retirees — that is a significant difference. And the absolute returns through May are relatively strong. Real estate produced a -8.3 percent return while infrastructure and commodities generated positive 3.96 and 15.27 percent returns, respectively. All are considerably better than the S&P 500.

The purpose of investing in a modern, well-diversified 60-40 portfolio remains well-grounded in today’s turbulent market. Enhancing return and mitigating risk over time (measured in years, not months) is its primary benefit. Inflation hedging and income generation are also important attributes. 

There are always new, high-flying investment concepts that are presented as better alternatives to a well diversified 60/40 portfolio. Some of the more recent ones include stocks, meme stocks, cryptocurrencies, SPACs and NFTs. Most fail to hold up over time. The modern 60-40 portfolio has stood the test of time, generating above average returns while producing less risk. To paraphrase Mark Twain, reports of the death of the 60/40 portfolio are grossly exaggerated.      

Kenneth J. Entenmann is chief investment officer and chief economist at NBT Wealth Management. Entenmann has over 33 years of investment experience. In his current role, he oversees more than $6 billion in assets under management and administration in trust, custody, retirement, institutional and individual accounts. Entenmann regularly shares his perspectives on the economy on his Market Insights blog at

Editor’s note: This article contains insights based on information available as of June 1, 2022.

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