The 60/40 Portfolio – The Classic Portfolio

The 60/40 portfolio is composed of 60% stocks and 40% bonds. The 60/40 portfolio is the standard when comparing balanced portfolios. It is a medium-risk portfolio.

The 60/40 portfolio is exposed to 60% stocks and 40% bonds. It is a medium-risk portfolio and can be built with 2 ETFs. For the past 10 years, it has returned 9.68% with a standard deviation of 11.05%. The dividend yield is 1.89%. The 30 year return is 9.09%. Last year it returned 21.97%.

Here is how to build the 60/40 portfolio

  • 60.00% Total US Stock Market (VTI)
  • 40.00% Total US Bond Market (BND)

What is the return of the 60/40 portfolio?

The table below shows you the return of the 60/40 portfolio. We show the average return over 10 and 30 years.

NameAsset class countYear to dateReturn in 201910 year returnCAGR since 1989 (%)Risk levelExpense ratio
60/40 Portfolio25.2221.979.68%9.0920.03%

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.

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.

What is the portfolio allocation for the 60/40 investment portfolio?

NameESG portfolio available?Total US MarketTotal Bond Market
60/40 PortfolioYes60.00%40.00%

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.

What are the advantages of the 60/40 portfolio?

Advantages:

  • 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.

Disadvantages:

  • 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

Related questions

What is considered a moderate portfolio allocation?
A 60/40 allocation is considered a moderate portfolio. A moderate portfolio is suitable for an investor with a medium risk profile.

What should my portfolio look like at 60?
A good starting point is holding your age minus 100 in bonds. This means that for a 60-year-old, 40% of the portfolio should be in stocks. The rest would comprise of high-grade bonds, government debt, and other relatively safe assets.

What is the ideal asset allocation?
Your ideal asset allocation is typically a mix of cash, bonds and stocks. If you have a short timeframe you should hold bonds and cash. If you have a longer timeframe you should hold stocks.

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