Is the 60/40 portfolio dead? What the data says since 2002
"The 60/40 is dead" was repeated a lot in 2022. Let's check it against the data.
The promise of the 60/40
Combining 60% in stocks (growth) with 40% in bonds (stability) works as long as stocks and bonds do not fall at the same time. For decades, with interest rates falling, bonds rose when stocks fell, and the mix smoothed the ride.
The numbers (S&P 500 + 7-10 year Treasuries)
With real ETFs and annual rebalancing, since Sep 2002:
- Annual return: 8.5%.
- Maximum drawdown: -26.8%.
- Volatility: 8.8%.
- Worst year: 2022 at -17.0%.
2022: the year it failed
In 2022, inflation forced rates up. Bonds fell hard at the same time as stocks: the correlation that was taken for granted broke. A 60/40 portfolio of this kind ended the year at -17.0%.
And afterwards?
One bad year does not kill a strategy, but it does light up its weak point: it does not protect against an inflation and rising-rates scenario. HAA watches inflation-linked bonds (TIP) as its canary precisely to detect environments like that.
What alternatives are there
| Alternative | Idea | Cost |
|---|---|---|
| Keep the 60/40 | Patience and discipline | Possible heavy drops if 2022 repeats |
| Permanent Portfolio | Add gold and cash | Somewhat lower return |
| Tactical strategies like HAA | Step out of risk on a signal | Turnover, taxes, complexity |
Compare the three in the comparison tool.
Verdict
The 60/40 is not dead, but it is no guarantee either. It is a reasonable, cheap-to-run benchmark; you know its weak point. The question is not "is it dead?" but "can I withstand its worst scenario?".
Frequently asked questions
Why did bonds fall in 2022?
Because interest rates rose: when rates rise, the price of bonds already issued falls, and the more so the longer their duration.
Does a 60/40 with short bonds suffer less?
Normally yes, because shorter-duration bonds lose less when rates rise, although they also earn less in a recession.
Is the 60/40 right for me?
It depends on your horizon, your risk tolerance and your situation. This site gives no personalised recommendations.