Five factors influencing the effectiveness of a 60/40 portfolio

Market commentators have devoted much energy over the past year to debating whether it’s time to write off the traditional 60/40 approach to investing that broadly allocates 60% of a portfolio to equities and 40% to fixed income. Rather than being drawn into that discussion, we believe it’s more constructive for investors to focus on understanding the macroeconomic conditions under which the effectiveness of a 60/40 portfolio may be challenged and what this means for portfolio construction going forward.

Key takeaways

  • Periods of higher inflation, uncertainty, and lower liquidity can lessen the diversification benefits of a 60/40 portfolio.
  • During periods of monetary expansion, typically driven by accommodative monetary policy, there tends to be a modest positive correlation between stocks and bonds, but we would note that both asset classes’ returns are generally positive during these periods, noted by our data.
  • Elevated market volatility has a modest effect on the potential diversification benefits that a 60/40 approach can offer.
Manulife Investment Management
Manulife Investment Management

Manulife Investment Management is the global wealth and asset management segment of Manulife Financial Corporation. We draw on more than a century of financial stewardship and the full resources of our parent company to serve individuals, institutions, and retirement plan members worldwide. Headquartered in Toronto and Boston, our leading capabilities in public and private markets are strengthened by an investment footprint that spans 19 countries and territories. Our private markets strategies include private equity and credit, real estate, infrastructure, timber, and agriculture. Responsible stewardship is integral to our business and culture, and we seek to be a global leader in creating long-term, sustainable, value for our stakeholders.

Amy Theuninck
Managing Director, Insurance Solutions
197 Clarendon St, Boston, MA 02116
United States

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