Portfolio Management: 60/40?

BlackRock vs. Goldman in the Fight Over 60/40

Is it time for a new approach to portfolios or was 2022 just a very bad year?

By James Mackintosh, The Wall Street Journal, Updated Jan. 15, 2023

Before getting into them, it is worth considering why 60/40 became the standard (some prefer 50/50 for a bit more caution, or 70/30 for a bit more aggressiveness). It gives an investor decent exposure to growth through the stock element, steady income from the bonds, and a cushion during recessions when stocks often fall hard and bond yields usually fall too, increasing bond prices. Plus, it is easy.

Last year, stocks were down big, and bonds lost money too…

The fundamental problem is that last year the Everything Bubble deflated. Stocks and bonds started out very expensive, as did TIPS and private assets, because they were priced on the assumption of very low interest rates. Once the Federal Reserve recognized reality, the assumption went out the window and prices plunged. With valuations back in the range of reasonable for both stocks and bonds, a 60/40 equity/bond split is a decent starting point for building a portfolio—even if those who worry more about long-run inflation, as I do, might add a little more inflation protection than comes as standard. [end quote]

The Federal Reserve never “recognized reality” – the reality that a Fed which arrogated to itself the right and power to control the time value of money by creating mountains of fiat money would lead to asset bubbles.

Jerome Powell has said that he wants the Fed to be restrictive “for a prolonged period” until they are sure that inflation will not resurge, then return to a “neutral” fed funds rate which neither stimulates nor slows the economy. This implies that the Fed will finally, for the first time in 20 years, eventually allow the market to set interest rates without interference (barring emergency action in a lender-of-last-resort crisis).

But that’s not a sure thing by any means. The bond market doesn’t believe it. The stock market doesn’t believe it.

I think it’s premature to say what will happen in 2023-2024.

The classic 60/40 portfolio ignores that cash (or cash equivalents, like short-term Treasury bills or short-term secondary market TIPS) are also an investment class until risk subsides somewhat.



80/20 equities for 2023


Leap - I’ve read here and other places that it takes quite a while for the Fed actions to ripple through the economy and the equity markets may not really feel the effects of the Fed’s actions until in LATE 2023.

I’m not a fortune teller, nor am I a high-priced economist, but I’m not going 80/20 equities in 2023 for sure. I’m going to wait it out and see what transpires throughout the year.

Another thing to consider - not everyone is in the same boat in terms of their investing horizon. Some, like me, are at a point in their life where 80% equities puts way too much risk in the portfolio when that risk may not be warranted to maintain a given investor’s lifestyle.

I hope you would you agree.



Copy that! More likely 20/80 equities/short-term bonds is a better ratio for those with a short life expectation…


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I still can’t get myself to even think about bonds. Even at 56. The '08 crisis saw EVERYTHING fall. Ditto today . I do not see a justification for bonds being a counter-acting force on a portfolio anymore. As I get older I shy from anything Saul invests in and go more towards large value and blue chip dividends.


Bonds are usually held to maturity. Most bond investors construct a ladder of bonds which mature in successive years. Meanwhile they collect the interest. This is a safe and stable way to get income. (Assuming the bonds are not from companies that default.)

I agree with you about large value and blue chip dividend stocks. These are my preference.


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When you’re retired, or close to it, you need to maintain roughly 5 years oif living expenses in “cash” to prevent being forced to sell stocks during a major downturn to pay for living expenses (most major downturns are shorter than 5 years). For the last 10+ years of zero and near-zero rates, that was easy to do and didn’t require much decision making (because plus or minus 0.1 or 0.2% wouldn’t affect much of anything). But today with interest rates higher in various segments, you do have some substantial decision making to do on a regular basis regarding where to invest that 5 years of “cash” (because the difference between a ladder of CDs or T-bills or bonds at 4.5% is much more than a savings account at 0.3 or 0.5%).


Perhaps somewhat counter-intuitively, that method usually reduces your portfolio value, as Kitces explains in this article. In a nutshell, the reason is because refilling the cash bucket requires accurate market timing to be successful. Because no one has that ability, it only works when you get lucky (which does happen sometimes).

The thing that kills retirement portfolios is a poor sequence of returns early in the retirement period. The way to mitigate that is to start off with a “cash” bucket like you describe, and then preferentially spend the cash in the early years. Which effectively means you actually are increasing your equity exposure the longer your are retired. This method improves portfolio survivability and/or increases the initial “safe” withdrawal rate. As an interesting side effect, this actually allows you to be more conversative in the early years.


Not at all counter intuitive. All things that reduce your risk also reduces your returns over the long-term.

Yes. This is why you use 5 years (some people use less, some people use more, even 10 years) so you have a wider window in which to do such timing. If one year is terrible, you allow it to fall to 4 years, if 2 years are terrible, you allow it to fall to 3 years. It’s very rare to have 3 terrible years in a row, but it could happen.

Yep. 1929 start and 1966 start. Those two sequences is why the safe withdrawal rate from a 60/40 portfolio is about 4% and not closer to 5%.

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That’s the thing, the cash bucket method increases your risk by reducing portfolio survivability. Most of the time, you are better off by simply rebalancing, even in bear markets. From the conclusions of Kitces article I linked to above:

In the end, the reality is that while cash reserve strategies appear psychologically appealing, their actual benefits as an enhancement for retirement income sustainability appear to be a mirage upon closer inspection. The buffer zone approach appears to do little to effectively “time” the market, and/or to the extent it does, the benefits are overwhelmed by the adverse consequences of a large allocation of cash in the portfolio that drags down long-term returns.


What do you mean by rebalancing? I assume you mean that if you are 60/40, as those proportion change with market activity, you rebalance periodically to 60/40. Well, when we say “cash”, we don’t mean literally cash, but rather a ladder of fixed income instruments that become available when necessary (for each year’s expenses), and that ladder is part of the “40”!

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I will be more open about my intentions. I have from age 60 currently to age 90. My family is long lived. I do not smoke or drink. I eat well, exercises etc…I am a young 60.

The next 30 years bonds are a bad bet. Interest rates over the next three decades will be rising. BTW I am not saying it wont be up and down volatility.

Quite the opposite bonds have more volatility than equities. That was discussed in the CFA materials.

I actually will be 100% equities.

If you look at 1950 a lower yield into 1980 thirty years later a much higher yield under Volcker…buyer beware every step of the way.

I agree the FED wont do anything for the market or for that matter for the economy in 2023. I think the FED wont need to do anything up or down in the FF in 2024. FF is the FED Funds rate.

Good point, below.
The best part of the bear market - for the long term - was the end of ZIRP, making bonds crash as well. And cash was King. But now that some form of historical normalcy has returned - money markets making 4+%?? Preferreds and corporates and junk paying well over 6-8 depending on actual risk? imagine that - cash in money markets at @4% is not King, but it is also not trash.

The classic 60/40 portfolio ignores that cash (or cash equivalents, like short-term Treasury bills or short-term secondary market TIPS) are also an investment class until risk subsides somewhat.

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Just a note risk has been subsiding since the beginning of 2022.