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The classic 60/40 portfolio is often the benchmark portfolio when comparing portfolios. The 60/40 investment portfolio is split between stocks (60%) and bonds (40%). It is one of the most simple portfolios, and it has countless variations.
It is a great starting point when building your portfolio.
The 60/40 Portfolio – The Classic Portfolio
- The 60/40 Portfolio – The Classic Portfolio
- Description of the 60/40 investment portfolio
- Returns and risk for the 60/40 portfolio
- Building the portfolio(s)
- Portfolio allocation for the 60/40 investment portfolio
- How we select the right ETFs
- Advantages and disadvantages of the 60/40 portfolio
- Alternatives to the classic 60/40 portfolio
- Suggestions for your next steps
Description of the 60/40 investment portfolio
The 60/40 investment strategy involves building a portfolio that is allocated 60% to equities and 40% to bonds. The most straightforward implementation of the strategy would be to buy the S&P 500 and U.S. Treasurys.
In theory, a 60/40 mix allows you to maintain balance in your portfolio when the market is high, and when it’s low. It’s’s designed to minimize risk while generating a consistent rate of return over time, even during periods of volatility.
The main advantage of a 60/40 portfolio is that the bond allocation moderates the risk of the portfolio.
It is very much a “sleep well” portfolio.
Returns and risk for the 60/40 portfolio
|Name||Asset class count||Year to date||Return in 2019||10 year return||CAGR since 1989 (%)||Risk level||Expense ratio|
Building the portfolio(s)
Below you can see the asset allocations for the portfolio(s). You can also see if the portfolio(s) has a socially responsible investing (ESG) variant portfolio. You can read more about socially responsible investing (ESG) investment portfolios in this post.
To build the portfolio(s) yourself, go to our best in class ETF page to see which ETF you should choose for a particular asset class. There you can also see which socially responsible investing ESG ETFs you should select.
Portfolio allocation for the 60/40 investment portfolio
|Name||ESG portfolio available?||Total US Market||Total Bond Market|
How we select the right ETFs
There are a lot of ETFs out there. Most of them can be discarded because:
- They are too expensive
- They hold too few assets and are therefore too illiquid
- They do not meet the criteria for representing the asset class they are supposed to mirror.
We have carefully selected an ETF for each asset class that the portfolios on portfolioeinstein.com use. If you want to read more about our selection process and see what we consider the best ETFs please visit our article What Is The Best ETF?
If you are a European investor you need to buy European ETFs. We list 47 best ETFs in our article What Are The Best ETFs For European Investors? (Here Is 47).
As of 2020 we also track socially responsible investing ESG portfolios. Socially responsible investing (ESG) portfolios prioritize investing that puts an emphasis on environmental, social and corporate governance issues.
You can find the socially responsible investing ESG ETFs in the same article.
Advantages and disadvantages of the 60/40 portfolio
- The 60/40 investment portfolio is easy to implement (it has only two funds).
- The 60/40 portfolio is easy to maintain and rebalance.
- It is a very low-cost portfolio. The fund uses some of the cheapest and most liquid ETFs.
- It generates a respectable return over long periods.
- It can easily be adapted to serve any risk tolerance.
- It does not have large drawdowns (low volatility) because of the substantial bond portion of the portfolio.
- The classic 60/40 portfolio may not offer enough return to meet your financial goals. This is due to the large bond portion of the portfolio. Bonds typically have lower returns than stocks.
- It has done very well in the past due to falling interest rates and therefore rising bond prices. This may not repeat itself.
- The investment portfolio may be considered “boring” and unsexy. You’re not going to get a lot of attention at parties talking about your investment portfolio!
- The portfolio may not offer enough exposure to the international stock market.
Alternatives to the classic 60/40 portfolio
There are many alternatives to the 60/40 portfolio. The first place to look is to look at other balanced funds that hold only stocks and bonds. Have a look at our article The Balanced Portfolio: Portfolio Grand Daddy. In the article, we go through a lot of the other balanced portfolios.
Another alternative is The Coffeehouse portfolio. This portfolio holds more asset classes but is still a 60/40 portfolio.
Vanguard LifeStrategy portfolios are also a 60/40 portfolio. They have international exposure as well.
William Bernstein also has some 60/40 portfolios.
The Three Fund Portfolio can also have a 60/40 portfolio. It also has international exposure.
Rick Ferri’s Core 4 portfolios have a few 60/40 portfolios. We like Rick Ferri’s portfolios a lot.
Suggestions for your next steps
Finding the correct portfolio is hard. Maintaining your portfolio is also daunting. If you are still in doubt about which portfolio to choose, we suggest you read our article How To Invest Money: 5 Simple Steps That Work For Anyone
If you have already committed to a portfolio – good for you! If you need help maintaining the portfolio you will find our rebalance worksheet useful. Rebalancing your portfolio lowers your risk and may even provide higher returns in the long run.
You can find the rebalance worksheet in our article Here Is The Most Easy To Use Portfolio Rebalance Tool
The 60/40 investment portfolio is a great starting point and even an endpoint for many! Vanguard manages a fund (VBINX) that is a 60/40 portfolio. The fund’s assets are 36.9 billion dollars, so you are guaranteed to be in good company.
What is the main reason that you don’t want to implement a classic 60/40 investment portfolio?