Following the Herd Won’t Save You. 60-40 Stocks Not Enough
In 2000, bonds were paying nearly 7%. Today, bond yields are at all-time lows.
Why does this matter?
Because in 2000, if you had a 60/40 split—60% stocks and 40% bonds in your portfolio—you weathered the storm better than investors heavily weighted in stocks. Those higher bond yields helped offset some of the losses from the stock market downturn.
Today, however, with 10-year Treasury yields at historic lows, that bond cushion isn’t nearly as effective. In the midst of recent market volatility, relying on traditional allocations offers far less protection.
The following article will give you valuable insights into asset allocation strategies that better fit today’s investment landscape.
Table of Contents
Understanding Asset Classes
Hundreds of sectors and industries are represented on the stock market. If you look at the S&P 500 index, for example, you’ll find several sectors such as industrials, healthcare, technology, real estate, and more. These sectors differ based on several key aspects:
Risk vs. Return
A stock’s price can depend on different factors, including growth potential and value. Some companies prioritize paying high dividends to shareholders, while others reinvest their profits back into the business. Generally, if you are seeking a higher return, you must be willing to take on greater risk.
Capitalization
Thousands of multinational companies are publicly traded, ranging from small to large enterprises. A company’s value, or market capitalization, is determined by multiplying the number of its outstanding shares by the current stock price. Capitalization helps investors assess the size and potential volatility of a company when building their portfolios.
4 Things You Should Know About Asset Allocation for Stocks and Bonds
- Ultra Aggressive Portfolio
- Conservative Portfolio
- Moderately Aggressive or 80/20 Portfolio
- Aggressive Portfolio
When investing, understanding asset allocation is crucial. Asset allocation refers to how you divide your assets among different classes such as cash, securities, stocks, and bonds. The goal is to maximize returns while minimizing risk. Successful asset allocation requires prioritizing investments from the most aggressive to the most conservative, directly impacting your potential returns. The ideal portfolio percentage depends largely on your risk tolerance and time horizon. Here’s a closer look at four common approaches:
1. Ultra Aggressive Portfolio
If you are seeking returns of 9% or higher, an ultra-aggressive portfolio may be suitable. This approach allocates 100% of your assets to stocks, focusing solely on equities. While it offers the potential for stable long-term capital growth, it can experience significant short-term volatility.
2. Conservative Portfolio
Investors who prioritize capital preservation over high returns may prefer a conservative portfolio. In this case, no more than 50% of the portfolio is allocated to stocks, with the remainder in bonds or cash equivalents. While stocks can help offset the effects of inflation, this approach emphasizes minimizing risk rather than maximizing growth.
3. Moderately Aggressive or 80/20 Portfolio
For those with a long-term horizon and a target return of at least 8%, a moderately aggressive allocation may be appropriate. Typically, 80% of the portfolio is invested in stocks and 20% in bonds or cash. This strategy offers a balanced approach, blending growth potential with a medium level of risk tolerance.
4. Aggressive Portfolio
An aggressive portfolio focuses heavily on equities, whose values can fluctuate daily. The primary objective is long-term capital appreciation. This approach, often referred to as a capital growth strategy, accepts short-term volatility in pursuit of higher returns over time.
Asset allocation plays a critical role in determining your investment outcomes. Whether you invest in stocks, bonds, or alternative assets, how you allocate your portfolio can make a significant difference. While some experts advise against allocating 100% of assets to stocks due to higher risk, others argue that calculated risk-taking can lead to substantial returns over time—especially when supported by a solid investment strategy.
The 60/40 Wall Street Myth of Stability
All too often, we encounter individuals surprised by the extent of their investment losses. Many believed their portfolios were being managed carefully and conservatively.
However, the reality is often revealed during severe market downturns like the 2020 COVID-19 crash.
When we examine these portfolios, it is astonishing how frequently they adhere to a 60/40 model—60% stocks and 40% bonds—or worse, due to advisor neglect or failure to rebalance, they have drifted to 70/30 or even 80/20 allocations. It’s no wonder losses have been so severe.
Many of the largest pensions and investment firms continue to use a 60/40 split because it is traditionally seen as a “balanced” approach—more stable than being heavily weighted in stocks, yet aiming for better returns than bond-heavy portfolios.
But what does the data really say?
From March 2000 to March 2020—a 20-year span—a 60/40 portfolio earned an annual return of approximately 5.27%, while the S&P 500 returned 4.79%. That’s before accounting for taxes and fees. On paper, the 60/40 model appears to slightly outperform the broader market, which explains why Wall Street often promotes it to high-net-worth and ultra-high-net-worth investors.
However, from October 2007 through March 2009, a 60/40 portfolio still experienced a steep loss of around 33%. Worse yet, it took approximately 603 days just to recover back to its starting value.
Imagine retiring in October 2007, entrusting $30 million to an advisor at a major Wall Street firm who places you into a standardized 60/40 portfolio. After the market crash bottoms out in March 2009, you could be facing a loss of nearly $10 million—before even factoring in withdrawals to support your lifestyle. The once-comfortable belief that your nest egg would easily outlast your lifetime would be severely tested.
For high-net-worth and ultra-high-net-worth families—especially those nearing retirement or already retired—the recovery period needed to bounce back from such losses may not be practical. Moreover, the appetite for volatility at this stage of life is understandably much lower.
If you are concerned that the traditional 60/40, 70/30, or 80/20 strategies no longer serve your needs, now is the time to rethink your approach. Protecting and preserving your wealth, while still aiming for meaningful growth, requires a customized, forward-looking investment strategy.
What Does Your Financial Advisor Say about 60/40?
The important question is: why accept the risk of losing millions simply because a traditional strategy like 60/40 is widely used?
If you work with a wealth manager or financial advisor who presents themselves as a fiduciary, are they truly acting in your best interests if they haven’t shared the historical performance data—or the risks—associated with a standard 60/40 portfolio? Unfortunately, many financial advisors may not fully understand the long-term consequences themselves. They often follow firm-approved programs designed to streamline client placement into familiar models like 60/40 allocations.
When market downturns occur, the most common advice tends to be “stay the course,” even if it means enduring steep portfolio losses. But for high-net-worth and ultra-high-net-worth investors, the stakes are simply too high to rely on conventional, one-size-fits-all strategies.
At PillarWM Finder, we take our fiduciary duty seriously. We believe that investment decisions should be guided by data, historical insight, and each client’s specific financial situation—not by blindly following what the majority of institutions promote.
The reality is that the traditional 60/40 portfolio model tends to underperform in major market crashes. During the crisis of 2020, for example, 60/40 portfolios fell over 12% between February and mid-March alone.
Shouldn’t your investment strategy be better prepared for volatility—and better aligned with your financial goals?
What to Do Differently
Successful investing involves not only participating in market gains but also protecting assets during downturns.
Many high-net-worth and ultra-high-net-worth individuals are now seeking investment models designed to capture much of the market’s upside while mitigating the risks of severe losses. Rather than relying on traditional 60/40 asset allocations, which may leave portfolios vulnerable during market crashes, customized strategies that balance growth with preservation are increasingly preferred.
These approaches aim to deliver strong returns during positive market cycles while maintaining greater resilience during periods of volatility.
Investors interested in building portfolios that emphasize principal protection, tailored risk management, and long-term financial stability can explore a wide range of independent investment firms offering customized private investment management solutions.
How Is Your Portfolio Doing During the Current Crisis?
Periods of market volatility, including bear markets where securities experience an average decline of 20% or more, can expose weaknesses in portfolio strategies. Investors heavily reliant on traditional 60/40 stock and bond allocations may find that this approach does not always protect their wealth during major downturns.
If your portfolio is experiencing significant losses and the advice you are receiving centers only around “staying the course” without addressing the evolving risks, it may be time to reevaluate your investment strategy.
For high-net-worth and ultra-high-net-worth individuals, relying on conventional, one-size-fits-all portfolio models may not be enough to protect years of accumulated growth. Asset allocations should be customized to your specific financial objectives, risk tolerance, and long-term wealth preservation goals.
Exploring independent investment firms that specialize in private investment management can help you discover approaches better aligned with the needs of high-net-worth investors.
The Future of the 60/40 Portfolio
History
Although 2022 has challenged the traditional 60/40 portfolio (60% stocks, 40% bonds), it is not yet the worst year on record. Historically, after poor performance years, the 60/40 portfolio has experienced an average return of 11.5% in the following years. This suggests that the strategy may not be obsolete, but continued monitoring is essential.
In previous decades, the Federal Reserve’s ability to control inflation contributed to a low correlation between stocks and bonds. Falling real yields historically supported both asset classes, providing investors with diversification benefits.
What’s Ahead
Looking forward, persistent inflation could lead to stronger positive correlations between stocks and bonds, diminishing the historical diversification advantage of the 60/40 allocation. Rising interest rates are causing bond prices to decline, and elevated real yields may put downward pressure on both stocks and bonds. Additionally, the Federal Reserve’s ability to intervene and support asset prices may be more limited in the current environment.
How to Prepare
Maintaining a disciplined, long-term investment approach remains critical. Investors are encouraged to remember the historical strengths of diversification while adapting to current market conditions.
Implementing tax-efficient strategies, such as tax-loss harvesting, can enhance overall returns. Diversification across a broader range of asset classes, including varying levels of risk, may help reduce portfolio volatility. Keeping at least 5% of total assets in cash reserves can provide liquidity during down markets.
Consulting with independent advisors can help you design an investment strategy aligned with your financial goals and risk tolerance. To take the next step in strengthening your investment approach, you can:
