Putting 60 per cent of a portfolio in stocks and 40 per cent in bonds is supposed to hedge against both assets dropping simultaneously. But it didn't pan out that way in 2022.
Inflation and rising interest rates whacked both asset classes, and a Bloomberg index tracking a 60/40 mix is down about 17 per cent for the year. But some veteran investors say the classic approach to investing still makes long-term sense, and that bonds are positioned to regain their status as a good counterweight to stocks. For long-term investors, the drop in stock valuations and the rise in bond yields in 2022 sets the stage for future average returns of 6.
“I always think that's how the mix is conventionally construed, but the experts don't recommend that, and I certainly wouldn't, either,” she said. “Most investors should have exposure to international equities and have some — not a lot, but some — cash on hand.” Since 1976 there have been, on average, a month of joint drops about every seven months, the research found. But during that same period, “investors never encountered a three-year span of losses in both asset classes,” according to the report.“For someone investing in a 60/40 portfolio for five years or more, the logic still holds,” said Roger Aliaga-Diaz, global head of portfolio construction at Vanguard and author of the report.
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