From Morningstar:

The 60/40 portfolio faced its worst performance since the global financial crisis in 2008 due to the dual bear market for both stocks and bonds in 2022. However, it ended up ranking up returns of 18% in 2023. Heading into 2023, geopolitical tensions were high, and many forecasted recessions, but the equity market ended up having a pretty decent year.

The “Magnificent Seven” stocks had gains ranging from 50% to 240%, which led to a more than 26% gain for broad market indexes. Additionally, the bond returns weren’t bad and finished the year with a 5.3% gain.

This overall resulted in the 60/40 portfolio posting its best returns since 2019 and faring better than many of the competing strategies often purported to be superior.

It was only slightly underwater 2022.

Markets still face challenges such as high inflation, which can elevate stock and bond correlations. The Fed is unlikely to return to the zero-interest-rate policy, which could affect correlations. Moderate returns for stocks over the next 10 years are expected.

The 60/40 portfolio’s swift fall and partial redemption provide several lessons. It shows that no portfolio strategy excels in every market environment, and market shifts matter, but how to position a portfolio in response is usually only obvious in retrospect. The 60/40 portfolio strategy may not be perfect, but its simplicity and proven long-term resilience make it a much better starting point than most other approaches to portfolio construction.



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