Stocks/Bonds 60/40 Portfolio: ETF allocation and returns (2024)

FAQs

What is the average return on a 40-60 portfolio? ›

The Stocks/Bonds 40/60 Portfolio is a Medium Risk portfolio and can be implemented with 2 ETFs. It's exposed for 40% on the Stock Market. In the last 30 Years, the Stocks/Bonds 40/60 Portfolio obtained a 7.06% compound annual return, with a 6.99% standard deviation.

This investment strategy seeks total return through exposure to a diversified portfolio of primarily equity, and to a lesser extent, Fixed Income asset classes with a target allocation of 60% equities and 40% Fixed Income. Target allocations can vary +/-5%.

The “60/40 portfolio” has long been revered as a trusty guidepost for a moderate risk investor—a 60% allocation to equities with the intention of providing capital appreciation and a 40% allocation to fixed income to potentially offer income and risk mitigation.

For instance, if you're an investor seeking moderate risk and decide that you want 60% of your portfolio in stocks and 40% in bonds, you could consider purchasing an all-country stock index ETF and then combine it with a bond ETF.

The 60/40 portfolio is the standard-bearer for investors with a moderate risk tolerance. It gives you about half the volatility of the stock market but tends to provide good returns over the long term. For the past 20 years, it's been a great portfolio for investors to stick with.

As interest rates stop declining and inflation potentially rises, the performance of the 60/40 portfolio is expected to be less impressive, especially during high inflation periods when energy and commodities tend to outperform.

As you reach your 50s, consider allocating 60% of your portfolio to stocks and 40% to bonds. Adjust those numbers according to your risk tolerance. If risk makes you nervous, decrease the stock percentage and increase the bond percentage.

Vanguard's research paper on this subject suggests that, for most investors, rebalancing on an annual basis is adequate. “Whether it's 60/40 or another asset allocation, rebalancing will help make sure your portfolio is consistent with your risk tolerance,” Schlanger said.

There, he predicted that a 60/40 portfolio was only projected to grow by a rate of 2.2% per year into the future and that those who wished to become adequately diversified will need to explore other alternatives such as private equity, venture capital, hedge funds, timber, collectibles, and precious metals.

Known as the 4% rule, Bengen argued that investors could safely set their annual withdrawal rate to 4% of their initial retirement pot and adjust it for inflation without running out of money over a 30-year time horizon.

What are the best 3 ETF portfolios? ›

One option for a solid three-ETF portfolio could be to include the Schwab U.S. Dividend Equity ETF (SCHD), the Vanguard S&P 500 ETF (VOO), and the Invesco QQQ Trust (QQQ). The SCHD ETF focuses on high-quality dividend stocks, which can provide stable income and potential long-term growth.

Experts agree that for most personal investors, a portfolio comprising 5 to 10 ETFs is perfect in terms of diversification.

The expected return on a portfolio composed of 40% stock A and 60% stock B is 21%. If the correlation between the returns on Stock A and Stock B is 0.5, the standard deviation of the portfolio is 14.42%.

The outlook for 60:40 returns is challenging

The US-centric portfolio is expected to deliver an annualised total return of around 6.5% over the next 10 years, with the global portfolio slightly better at 6.8%.

Many consider a conservative rate of return in retirement 10% or less because of historical returns.