Stock market outlook: 60/40 portfolio looks set for a strong decade

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The classic 60/40 portfolio isn't dead. Here's why it's gearing up for a decade of strong returns.

Even after a brutal 2022, Vanguard strategists don't see a reason to ditch the tried-and-true 60/40 portfolio mix. In fact, they think aA portfolio that held 60% stocks and 40% bonds took a loss of about 16% last year, which raised doubts about whether the strategy could remain viable in an age of painful volatility and heightened macro risks. But pushing the timeframe out a full decade, the classic portfolio composition retains its promise of steady returns for investors.

A difficult 2022 brought stock valuations lower and closer to fair value, in Vanguard's view. That makes the classic balance look even more attractive, and even the worst-case risk scenario has improved in 2023. "But that's not to say that 60/40 is any better than a 40/60 or 90/10 portfolio for investors who need a more conservative or more aggressive portfolio for their goals, time horizon, and risk tolerance," Schlanger said, adding that the needs of a young adult differ from those of someone older. "It's a good starting place, but an investor will need to tailor a portfolio to their needs.

Finally, the strategist said it's important not to adopt a"set it and forget it" approach, but instead revisit and reassess periodically.

 

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