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The 60/40 Portfolio

The 60/40 Portfolio

July 29, 2020

Why even publish this article? I chose it, for the same reason I chose many other articles to post; to provide an example of now people can get turned around when it comes to generic financial advice. If you can really call it advice at all.  A 60/40 portfolio is an investment allocation or strategy that holds 60% of the money is stocks and 40% of the money in bonds and or cash. That doesn’t tell us a whole lot.  What kind of stocks? What kind of bonds? How much income or growth does someone need? The questions go on and on.  How can such a generic portfolio be considered advice? It can’t, and the article does eventually point that out. We all know that everyone has their own set of circumstances that make their current wants and needs different from someone else.

Now I agree with many of the points made in the article, but I would add one more rather important observation that all retirees need to consider. Times change and so do markets. You can not compare someone retiring today with a 401k and no pension to someone that retired 20 or 30 plus years ago that had a pension. You can’t compare 60/40 portfolios built 20, 30, or 40 years ago with a portfolio built the same way today due to the interest rate environment. 

There are aspects to markets, both stock and bond markets, that have remained remarkably consistent.  Their opportunities for an investor to realize long-term growth and their long-term efficiencies of pricing assets are just a few, but markets don’t exist in a vacuum. They anticipate change, they are forward looking. As the environment or world, in which these markets exist changes, the markets evolve. Which requires investors to evolve their thinking to keep up. You don’t need to reinvent the wheel, but common sense will tell you that nothing in the universe stays the same forever.

Living off the dividend from your company stock, putting your retirement savings in bank CDs and “downsizing” your house may have once worked for a lot of Americans. Much like blindly adopting a 60/40 portfolio like your parents once did. The world has changes, markets have changed so it may make sense to take some time and at least consider a change in your investment philosophy.