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

Stephen Foerster
13 min readOct 10, 2023

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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 for the long-run average balance between maximizing return and minimizing risk.”

That makes intuitive sense. But why should we care today about a “tradition”? And what constitutes a tradition anyway? Maybe you’ve heard the ham butt story. A little girl notices her mother cutting off the butt end of the ham before cooking it and asks her why she did that. The mother replies that that’s the way her mother always cooked a ham, and so it must be the right way. The girl’s grandmother lived nearby, so she asked her the same question. She got a similar response, that’s the way her mother always cooked a ham. Her great-grandmother also lived nearby, and so in her quest for an answer to the origin of the tradition, she asked her great-grandmother. Finally, she got the real answer: “I only owned one baking pan and it was too small to hold a whole ham so I would cut off the butt end to make it fit!” Is that how the 60/40 portfolio originated? If that’s the case, then we…

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Stephen Foerster

I’m a Finance prof, CFA, and author of In Pursuit of the Perfect Portfolio (with Andrew Lo). I write stories about investing. (I don’t give financial advice.)