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  • Bring down expense in your family office 

The 60/40 Portfolio – The Classic Portfolio

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

Asset Allocation

60-40-portfolio-asset-allocation

 

Returns and risk for the 60/40 portfolio

Portfolio nameAsset class count1 year return (2019)Year to date10 year returnCAGR since 1989DrawdownRisk LevelExpense ratioYield
60/40 Portfolio221.97%2.61%9.68%9.09%-20.13%2 - low risk0.03%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

Advantages:

  • 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.

Disadvantages:

  • 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.

Resources

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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