Rethinking 60/40: The Portfolio That Built an Era But Can It Still Hold?

Last year, we explored whether the traditional 60/40 portfolio still holds up (original article). With markets shifting and new products hitting the mainstream, let’s take a fresh look.

For decades, the 60/40 portfolio (60% stocks, 40% bonds) was considered the gold standard of balanced investing. It offered a mix of growth and stability, and for a long time, it worked. But today’s investing landscape looks very different from the one in which this model was born. Inflation, rising rates, global shocks, and the introduction of new asset classes have forced even traditionalists to ask: is it time to rethink the formula?

Where 60/40 Came From and Why It Caught On

The 60/40 framework traces its roots to Modern Portfolio Theory that laid the groundwork for building diversified portfolios designed to maximize returns for a given level of risk. The idea wasn’t to eliminate risk, it was to combine assets in a way that their movements offset each other. In practical terms, that meant mixing higher-growth, more volatile stocks with income-producing bonds that tended to move in the opposite direction.

Over time, 60/40 became a default setting for many advisors and retirement plans. It was simple, understandable, and most importantly, backed by long stretches of performance data. Particularly from the 1980s through the 2010s, when interest rates were falling and inflation remained tame, the model delivered strong results. Stocks powered growth, bonds provided income and acted as a shock absorber during stock market downturns. The inverse correlation held up, and investors benefited.

The Glide Path and Its Limits

The 60/40 mix also became central to the concept of a “glide path” – the idea that as you get older, you gradually reduce risk by shifting more of your portfolio from stocks into bonds. Many target-date retirement funds follow this philosophy, starting with heavier stock exposure (e.g., 80/20 or 70/30) and adjusting over time toward 60/40 or even 40/60 by retirement.

The logic makes sense: less time to recover from market losses means less exposure to volatile assets. But here’s the catch – this approach assumes that bonds will continue to offer meaningful protection and positive real returns. And that assumption has been challenged in recent years.

The 2022 Breakdown: A Cautionary Snapshot

The shock of 2022 was a wake-up call. For one of the few times in modern history, both stocks and bonds posted significant losses in the same calendar year. Investors who thought their portfolios were “balanced” watched the floor drop out on both sides.

Bonds, which were supposed to provide cushion, got hammered by aggressive rate hikes. Stock losses were expected, but bond losses felt like a betrayal of the model. Suddenly, the inverse correlation that underpinned the 60/40 framework didn’t just weaken, it broke down entirely.

It wasn’t the first time something like this had happened, but it was the most severe instance in decades. And it raised a bigger question: if the two pillars of your portfolio can fall at the same time, is it really diversified?

Has the World Changed Or Just Our Expectations?

Some argue that 2022 was an anomaly. Others say it’s the beginning of a new normal – one where inflation risk, geopolitical instability, and tighter monetary policy are permanent features of the landscape. If that’s true, the 60/40 model may no longer offer the protection people think it does.

Still, long-term historical data offers a counterpoint. Morningstar’s 150-year stress test shows that even with the unusual severity of recent bond losses, the 60/40 portfolio has consistently softened the blow of major market downturns—delivering less “pain” than stocks alone in nearly every crash except the one we’re living through now. In that view, the model isn’t broken, it’s enduring a once-in-a-century stress test and still holding up better than it gets credit for.

But even among those who question it, few are calling for its complete abandonment. Instead, the conversation has shifted toward evolution. How do we build a better version of balanced? If the 60/40 isn’t dead, how do we make it stronger?

So What Comes Next? 50/30/20?

Some wealth managers are now recommending portfolios with 5-20% in so-called alternative assets: private equity, private credit, real estate, infrastructure, or even crypto. The logic is straightforward – if traditional assets aren’t behaving the way they used to, bring in new ones that might provide different sources of return or risk mitigation.

But here’s the catch: alternatives aren’t a one-size-fits-all fix. They come with downsides like illiquidity, lack of transparency, high fees, limited access for non-institutional investors, and added complexity. You might be able to smooth out volatility on paper, but it may come at the cost of control, flexibility, or clarity. And not all alternatives behave differently from stocks or bonds. Some are more correlated than people realize.

The Problem Isn’t Just the Allocation, It’s the Assumption

The deeper issue isn’t whether 60/40 should become 55/35/10 or 50/30/20. It’s whether people understand why their portfolios are built the way they are. Too often, investors adopt models without fully understanding their mechanics or limitations.

Is your portfolio designed for stability, growth, income, or downside protection? Do you need liquidity in the next five years? What kind of volatility can you tolerate without panicking? These are the questions that matter more than the exact percentage breakdown.

The Value of Reconsidering the Default

If nothing else, the current conversation around 60/40 is a reminder to revisit your strategy. Not to panic or chase new trends but to make sure the design of your portfolio still matches your goals, your timeline, and the current environment.

For some, the traditional 60/40 may still be a solid foundation. For others, small adjustments – whether through tilts toward inflation-protected assets, dividend stocks, or select alternatives – may make sense. But either way, understanding the model is more important than memorizing the formula.

Because the real risk isn’t in the ratio. It’s in believing that one strategy will always work the way it used to, no matter how much the world around it has changed.