In Search of the 60/40 Stock/Bond Asset Allocation Origin — and Why It Matters

The strategy made sense decades ago, and still makes sense today

Here’s what the world’s largest asset manager, BlackRock, had to say recently about the “traditional 60/40 portfolio” which had faced criticism in 2022 for its negative performance: “The foundational 60/40 portfolio, where 60 percent is invested in stocks and 40 percent in bonds, is the initial starting point for many portfolios.” Clearly, something that’s both traditional and foundational has been around for a while, and must be a central premise to investing strategies, and so it matters to a lot of investors.

Why this 60/40 mix? BlackRock continued, “The main premise for the combination is that when growth assets, like stocks, sell off due to economic slowdowns, fixed income assets like bonds typically appreciate. While stocks tend to suffer in a recession due to lower earnings, bonds can rally because central banks typically cut interest rates to support the economy. When central banks ease policy, bond yields drop and bond prices rise. This dynamic means that bonds can provide a shock absorber in the portfolio, helping to cushion overall returns when stocks are falling.” In 2002, Financial historian and investment manager Peter Bernstein defended 60/40 as “a good compromise…