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Why Your 60/40 Balanced Portfolio Isn't Working in 2022

July 14, 2022


July 14, 2022


One of the tried and true ways to cushion a portfolio from wide swings in the stock market is to take a slug of your money and invest in bonds. But chalk up 2022 to being one of those rare times when investing in bonds doesn’t work the way it usually does.

This approach is often referred to in the Wall Street shorthand of a 60/40 balanced portfolio: 60% stocks and 40% bonds. There are endless variations to the stock/bond ratio and their underlying investments. But some version of a 60/40 portfolio usually does a good job of protecting portfolios from the kinds of wild swings that can lead to making bad decisions, such as dumping stocks just as the market is bottoming.

The reason the 60/40 portfolio has usually worked is that stocks and bonds haven't been moving in the same direction over an extended period of time. There may be days or weeks when they both rise or both fall—or bonds fall a little while stocks fall a lot—but for most part, they haven't been trading in lockstep. So when a financial plan requires stability, there’s good reason to invest in bonds.

But this year has been the worst in history for many bond funds. At the same time, stocks have fallen into a bear market. In fact, this year is only the second time in over four decades that stocks and bonds both posted losses for two consecutive quarters.

Read on Morningstar.com

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