60/40 stocks/bonds is the traditional way to balance an investment portfolio. However, this strategy is not wise to use in a bond market that is far from “traditional”.
The 60/40 Portfolio Strategy
The "60/40 Portfolio Strategy" means that 60% of the assets in an investment portfolio is in the form of stocks and the other 40% is in bonds. This strategy has been around for decades and is viewed as a traditional risk-mitigating investment diversification strategy. Having 60% of a portfolio in stocks allows the investor to take advantage of quickly-rising Bull markets, but when the cyclical market eventually sours, the investor can enjoy the stability of the low-risk bond market.
Today’s Bond Market is in Unknown Territory
The foundation of the 60/40 strategy as a barrier to market fluctuations lies in the bond market's stability. However, the rapidly increasing inflation and interest rates of today’s economy have made the bond market less stable. In fact, the 2022 bond market has seen its worst investment performance since the US Civil War period.
It’s Time to Revisit 60/40
With stocks and bonds both suffering investment losses, a risk-averse retiree would be wise to consider pulling some money out of the market and placing it into bank cash products, such as a savings account, certificate of deposit (CD) or money-market accounts. As interest rates rise, so should the return on these cash products. Sure, a 1% APY return on a money-market or CD won’t impress friends and family much, but it is far better than watching retirement funds disappear into thin air.