So far, the worst year in 100 years for the 60/40 strategy

See diagram. The 60/40 strategy is 60% equities, 40% bonds, and rebalance each year. It has returned 9% long term with relatively low volatility.

Separately, there’s an approach you can find by googling ‘hedgefundie’s excellent adventure’ where you take the idea of volatility capture from 60/40, and turn it to the max. You get a 3x leverage 20y-treasury bond fund and a 3x leverage SP500 fund. You rebalance over time. This gives you 3x more volatility to feed on than the regular 60/40.

However, it relies on the idea that bonds and stocks tend to be negatively correlated. One goes up, the other goes down. This year, the hedgefundie strategy got essentially wiped out.

Pennies, steamrollers, as it always was.


Also relevant


Something seems very wrong about your first chart. 60/40 is not down over 30% for the year. As your second char illustrates, it is more like 12%.

Edited to reflect the OP is same poster.

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I’m not so sure that this is the worst year in a century for the 60/40 strategy. Weren’t 1973 and 1974 even worse years for it? That was the biggest bear market since 1929-1932 for stocks. At the same time, interest rates were skyrocketing due to double digit inflation triggered by the oil embargo.


I think we would have to have another crash to new lows and then flounder around for a while to match 1973-4, but I don’t plan to look it up. I don’t have a crystal ball but I am still overweight cash and planning to wait till sometime next year to start averaging that cash back in -

Agreed, that chart seems way off. I wonder what the data source is?

The Vanguard Balanced Index Fund is a classic 60/40 fund made up of total us equity and bond indexes. Year to date performance for it is -15.09% as of 12/6/2022.

Maybe the chart is looking at some international 60/40 index. Some countries have faired far worse than the US this year, IINM.


Sorry, the image was shared to me without original context. It turns out to be from mid october when TLT was down 10% lower and the market was down at $360.


Thanks for more info about where the image came from. The graph still doesn’t compute, though, using the broad US indexes for a 60/40 portfolio.

The article was published Friday Oct 14th, 2022. VBIAX, Vanguard Balanced Index, was down ~24% that day, year to date, not the ~35% indicated by the graph. The 24% loss would be lessened to ~23% by dividends.

Still bad, and one of the worst performances on the chart, second only to one of the great recession years. It’s recovered though, down ~15% at the moment, YTD.


TLT is not the correct index to benchmark a 60/40 portfolio. BND would be a better representation.

TLT is ONLY government debt and is down 26% YTD. BND is corporate debt and is down only 13%.

VBIAX is the perfect benchmark for a 60/40 portfolio.

With 60% of its assets, the Fund seeks to track the performance of a benchmark index that measures the investment return of the overall U.S. stock market. With 40% of its assets, the Fund seeks to track the performance of a broad, market-weighted bond index.


Hello Hawkwin,

Firstly, I’m unsure why you think I said ‘TLT is the correct index to benchmark a 60/40 portfolio to’, because I know for a fact I didn’t say that. It just happened to be an example I had in mind having looked at it earlier in the day.

Secondly, whether TLT or BND is the correct choice to benchmark to, depends on what 60/40 strategy you’re employing. If your goal is to have ‘a bit of bonds, a bit of stocks’ to avoid big drawdowns, then BND would indeed be an appropriate investment grade index. And I think that is probably the most common approach.

If your 60/40 goal is to intentionally volatility harvest (as some 60/40 strategies are intended to do), then having something that behaves in a particularly inverse correlation with the SP500 is ideal; and TLT is more negatively correlated to the SP500 than BND over the long term - for the simple reason that companies doing badly tends to affect corporate debt and corporate equity at the same time.

Anyway theory and motivations aside. Let’s take a look at this in practice. If you load up:

And select backtest, choose 3 portfolios:

A) 100% SPY

B) 50% BND 50% SPY

C) 50% TLT 50% SPY

Unfortunately, it’s only available from 2008 onwards for these 3 tickers.

Portfolio A: 9.22% CAGR, sharpe ratio 0.59, sortino ratio 0.86, max drawdown -37%.

Portfolio B: 6.35% CAGR, sharpe ratio 0.68, sortino ratio 1.00, max drawdown -15%

Portfolio C: 7.45% CAGR, sharpe ratio 0.72, sortino ratio 1.07, max drawdown -21%

Aha! I just remembered they do asset class backtests too so let’s find out how that goes.

US stock market, Total US Bond Market, Long Term Treasury,

A) 100% stocks
B) 50% stock 50% bond
C) 50% stock 50% long term treasuries.


As before but a longer period.


A) CAGR 10.26%, sharpe 0.52, sortino 0.74, max drawdown -51%

B) CAGR 8.27%, sharpe 0.63, sortino 0.92, max drawdown -25%

C) CAGR 8.97%, sharpe 0.66, sortino 0.99, max drawdown -27%

Conclusion: IMHO it is unwise to have chosen 60% stocks, 40% total bond market for a 60/40 portfolio, when the option of 60% stocks, 40% long-term treasuries exists and has been known to generate mildly superior CAGR for some time. But, each to their own and I do acknowledge that 60/40 with total bond market is probably more common than 60/40 with long treasuries.

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Thank you for checking the details of the graph against data from October 14th.

However on reflection the article was likely not generated by those journalists but by the bank cited at the bottom. I know that it dates back at LEAST to mid-October, since it is published then in that article rather than around the current time. But it must date back earlier still for the journalists to cite it.

I am unfortunately a bit busy at the moment and don’t have time to check if there is a day that would make the figure make sense prior to mid-October. If I get time I’ll try to dig further to find the original BoA report it must have come from, if it’s publicly available.


Thank you for your data posted above comparing the returns of a balanced portfolio using the total bond market vs long treasuries. Good stuff!

For the BoA graph to be accurate, they’ll have to using some unconventional choices for equities and bonds. Perhaps having significant international exposure would do it, as I suggested above, but no way with anything like standard choices from the US market.

The ‘typical’ 60/40 exemplified by VBIAX did bottom out, coincidentally, on Oct 14th, so there’s no date this year that gives a ~35% loss year to date. Substituting the Vanguard Long Treasury index for total bond index would increase the losses, but not nearly enough to drag the balanced fund down to ~35% loss. October 14th was the worst loss of the year up to that point for the long treasury index, down 32% year to date.

The combination of long treasury bond index plus total stock market at 60/40 stock/bond would have been down ~28% on Oct 14th, by a quick slightly rough calculation. Not far off the 30% they mention in the text, though a ways off the ~35% that the graph shows.


FWIW I’m inclined to agree with the idea that the most likely explanation here is that the graphic is wrong or using a strange index.

I apologize if I inferred your use of that index as your intent to suggest it was a benchmark. I honestly have no idea why you would otherwise quote it. :man_shrugging:

Secondly, whether TLT or BND is the correct choice to benchmark to, depends on what 60/40 strategy you’re employing

If you build a 60/40 strategy with a 100% concentration in long government bonds, then you will likely increase your risk of failure - as this year illustrates.

I appreciate your inclusion of backtest data as it is helpful and beneficial - but unless I am mistaken, only reflects accumulation and not withdrawals. I think we can all agree that the goal of a 60/40 is not to die with the most money left over (the 100% stock accomplishes that), it is to spend it down with reduced risk and increase probability of success. If you include the SWR of 4% on that portfolio, would you have the same conclusion?

Have you considered reading my posts before you write replies to them? I literally just said:

" It just happened to be an example I had in mind having looked at it earlier in the day."

TLT and BND are fairly well correlated, as you ought to know, enough that a 10% move in one will result in a significant move in the other.

If you build a 60/40 strategy with a 100% concentration in long government bonds, then you will likely increase your risk of failure

Complete nonsense. “Failure”? The numbers I posted above demonstrate higher returns (by almost 1%/year) for slightly worse drawdowns in the worst case. (-27% vs -25%).

unless I am mistaken, only reflects accumulation and not withdrawals.

Correct, because 60/40 funds are ACCUMULATION STRATEGIES, not deaccumulation strategies. They have always been recommended for people who are BEFORE retirement by advisors.

I think we can all agree that the goal of a 60/40 is not to die with the most money left over

Why would ‘we all agree’? You’re the only person here that imagines 60/40 is a mainstream retirement/pension strategy.

The 60/40 rule was largely popularised by Jack Bogle as an investment strategy for mid-career people building up savings to help them get ready for retirement.

It was never marketed as a de-accumulation approach.

For old age, annuities are the mainstream strategy that is normally employed, or bond holdings.

For pre-retirement, mid to late career, 60/40 is a mainstream accumulation strategy that is considered medium risk but adequate growth.

I encourage you to read up a bit on 60/40 rather than make assertions about it from your imagination.

I encourage you to find a bit of data or references to support the claims you make in future.

Sure it was. In his seminal paper about SWR Bengen argued for a rate between 50 and 75% stocks/bonds and later advocated 60/40 in his book.



I encourage you to reflect on the words ‘mainstream’ and ‘popularised’ in the post you were replying to.

The existence of a paper talking about theroetical safe withdrawal rates on (accumulation) strategies is absolutely NOT mainstream thought on retirement drawdown, nor is it what is marketed by 60/40 fund providers.

I am referring to

  • 60/40 as it exists for >95% of people and >95% of wealth invested into 60/40 strategies

I am not referring to:

  • 60/40 as it exists on the fringe of hobby investors and academics

In the US (can’t speak to the UK) a 60/40 equity/bond portfolio for retirement drawdown is indeed mainstream, though hardly the only strategy that is widely used. I’d estimate it is more widely used than converting fully to annuities or bonds. Most people realize that keeping a sizable exposure to stocks will very likely let them live a better, more comfortable retirement than locking in a fixed income strategy.

As support for my own personal feelings on this subject, I offer Schwab’s article on ‘Structuring Your Retirement Portfolio’, which recommends 60/40 for early retirement, transitioning to lower stock levels as you age.