The classic 60/40 portfolio is often the benchmark portfolio when comparing portfolios. The 60/40 portfolio is split between stocks (60%) and bonds (40%). It is the most simple portfolio and it has countless variations. It is a great starting point when building your portfolio.
The 60/40 Portfolio – The Classic Portfolio
Returns and risk for the 60/40 portfolio
|Portfolio name||Asset class count||1 year return (2019)||Year to date||10 year return||CAGR since 1989||Drawdown||Risk Level||Expense ratio||Yield|
|60/40 Portfolio||2||21.97%||2.61%||9.68%||9.09%||-20.13%||2 - low risk||0.03%||1.91%|
Building the portfolio
Below you can see which mutual funds or ETFs you can use to build the portfolio. They are the best-in-class funds and ETFs for this purpose. Low-cost index funds. Read here how we selected the best funds.
- 40.00% US Total Stock Market (VTI)
- 60.00% Total US Bond Market (BND)
Advantages and disadvantages of the 60/40 portfolio
- Easy to implement (only 2 funds).
- Easy to maintain and rebalance.
- Very low cost.
- It generates a respectable return over long periods of time.
- It can easily be adapted to serve any risk tolerance.
- It does not have large drawdowns (low volatility) because of the heavy bond portion of the portfolio.
- May not offer enough return to meet your financial goals 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.
- May be considered “boring” and unsexy.
- May not offer enough exposure to the international stock market.
Go here for a rebalance excel worksheet.
Summary and your next steps
The 60/40 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 assets are 36.9 billion dollars so you are guaranteed to be in good company.
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