Master, the topic for today is a timeless classic in the investment world: the 60/40 portfolio. For a very long time, it has been considered the 'standard' asset allocation strategy. Let's discuss what this classic strategy means for us now, in 2025.

mew 프로필 아이콘
Mew

Master, first, I will briefly explain what the '60/40 strategy' is. It's the most classic asset allocation model, where you divide your investment assets into 60% stocks and 40% bonds. The core principle is simple.

  • Stocks (60%): They act as the 'growth engine' of the portfolio. This is the part where you expect high long-term returns to grow your assets.

  • Bonds (40%): They serve as the 'seatbelt' or 'airbag.' Generally, when the stock market falls, bond prices tend to rise or hold steady, so they are expected to act as a safety device that reduces the overall volatility of the portfolio.

Typically, the simplest method based on U.S. standards is to just buy two ETFs, like VOO and BND (or AGG), at a 6:4 ratio. This allows you to be diversified across the entire U.S. stock and bond market.

» See also: The Case for S&P 500 ETFs for Beginners

Historically, this strategy has shown quite excellent performance. Looking at the long term since the 1990s, it has even recorded an average real return of over 6% per year. However, in recent years, voices claiming that cracks are beginning to appear in this 'invincible formula' have grown louder. In particular, 2022 was a year when some even declared this strategy dead.

Based on this data, let's discuss whether the 60/40 strategy is still valid or if it's a relic that belongs in a museum.

kurumi 프로필 아이콘
Kurumi

Wow, classics really are forever! Master! I absolutely love the 60/40 strategy! You don't have to think about anything complicated; just buy according to the set ratio, and your assets grow on their own! Isn't that almost like magic? Devilish!

  • Ultimate Simplicity: No need to worry about what to buy or sell every day! Just set the 60/40 ratio and rebalance it once or twice a year, and you're done! Where else could you find such a simple and powerful strategy?

  • Forced Discipline: It's human nature to want to buy more stocks when the market is soaring and to sell everything in a panic when it crashes, right? But the 60/40 prevents those emotional mistakes. 'Stocks are up too much? I need to rebalance, so I'll sell some (automatic high-point selling).' 'Stocks have plummeted? I need to rebalance, so I'll buy some (automatic low-point buying).' It's a perfect system for trading!

  • Time-Tested Performance: I'm sure Mika-pi will nitpick about 2022, but that was just one year! If you look at the longer term, this strategy has overcome numerous crises and has consistently trended upwards! It's devilishly foolish to abandon a formula proven over decades because of a single failure!

My Kurumi's Heart-o-Meter Investment Score is 90/100! I think it's the best starting point, especially for a Master who finds investing difficult and complicated!

mikael 프로필 아이콘
Mikael

Kurumi, your naivety can sometimes be a virtue, but in the world of investing, it can be a fatal flaw. You need to look soberly at why that 'magic' hasn't been working recently. Human, I believe this classic strategy is facing a serious challenge. The risk score is 75.

First, there is the 'broken promise' between stocks and bonds. The core of the 60/40 strategy is the 'negative correlation,' where bonds protect against falling stocks. But look at 2022. In the face of interest rate hikes and high inflation fears, both stocks and bonds collapsed miserably. The U.S. 60/40 portfolio recorded its worst loss since 1937. It was as if the seatbelt plunged off the cliff along with the driver. Was this simultaneous decline an anomaly? Such events were actually common before the 2000s, and the negative correlation of recent decades might have been the exception.

Second, the appeal of bonds isn't what it used to be. Decades of a low-interest-rate environment dragged bond yields to the floor. Of course, the situation has improved somewhat with recent rate hikes, but can it really compare to the 1980s when bonds yielded over 10%? It means we can no longer expect the 40% in bonds to reliably support the portfolio as it did in the past.

Third, the world has become too complex. The 60/40 is a product of a simpler era when only stocks and bonds existed. Now, the range of investable assets is much broader, including real estate (REITs), commodities, private equity, and crypto-assets. Is there any reason to be confined to just these two asset classes? Especially in times of inflation, real assets like gold or commodities could serve as a better shield.

It's difficult to declare the 60/40 strategy dead, but it is no longer the 'master key' that you can follow mindlessly as you did in the past.

〔 Final Briefing 〕

Master, I will summarize the results of our discussion.

Growth Potential & The Beauty of Simplicity (Kurumi)

  • Investment Automation: Without being swayed by emotions, you can pursue stable long-term returns through rebalancing by 'selling high and buying low'! Devilish!
  • Proven History: Although there were exceptional years like 2022, decades of long-term data prove the consistent performance of the 60/40 strategy.
  • An Excellent Starting Point: It's the best textbook for anyone to easily follow and learn the basic principles of asset allocation without complex market analysis!

Potential Risks & The Changing Times (Mikael)

  • Broken Correlation: The risk that stocks and bonds can fall together during periods of high inflation was clearly demonstrated in 2022. This means the traditional defense mechanism may no longer work.
  • A Limited Portfolio: Relying solely on two asset classes—stocks and bonds—means missing out on the diverse investment opportunities of the modern era. It is necessary to diversify the portfolio with alternative investments like commodities, real estate, or private equity.
  • A Different Environment: This strategy shone during past periods of low inflation and falling interest rates, but you must remember that the future macroeconomic environment may be different from the past.

Key Data (Mew)

  • Long-Term Performance: It has proven its stability by recording an average annual real return of over 6% for the past several decades.
  • The 2022 Shock: With the simultaneous decline of stocks and bonds, the 60/40 portfolio recorded its worst performance in decades (around -16%). This event is considered to have exposed the fundamental limitations of the strategy.
  • Current Bond Yields: As of July 3, 2025, the U.S. 10-year Treasury yield is at approximately 4.35%, which is higher than in early 2022, suggesting that the investment appeal of bonds has somewhat recovered.
  • Alternatives: Recently, a strategy of incorporating 'alternative assets' such as commodities, real estate, and private equity at about 5-30% of the portfolio to supplement the traditional 60/40 has been spreading, mainly among institutional investors.

Conclusion: Master, the '60/40 strategy' is not dead. However, the world has changed too much to call it 'the return of the king.' The key lesson this strategy teaches us is the principle of asset allocation itself: 'Divide your investments between growth assets and safe assets to diversify risk.'

It is no longer feasible to think of the 60/40 strategy as a universal formula that works automatically if you just set it and forget it. Based on this principle, it is now a time when the wisdom to build your own 'modern portfolio'—by changing the type of bonds or adding assets like gold or real estate according to your investment goals and risk tolerance—is required.

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