Is the 60-40 portfolio still relevant? The constant debate has been raging on Wall Street after two years of mediocre performance. However, with the 10-year Treasury note yield around 4%, some strategists argue that the case for allocating a substantial portion of one’s portfolio to bonds has rarely been stronger.
With the Federal Reserve planning three interest-rate cuts next year and declining inflation, buying more bonds at current levels could result in long-term rewards, providing a hedge for your portfolio during turbulent times, according to market strategists and portfolio managers who spoke to MarketWatch.
As equity valuations reach new heights following an unexpected stock-market rebound, diversification becomes more crucial. Portfolio manager Michael Lebowitz recently boosted his allocation to bonds and emphasized the appeal of earning 4% on Treasury bonds. Lebowitz noted, “We’re adding bonds to our portfolio because we think yields are going to continue to come down over the next three to six months.”
Since the early 1950s, the 60-40 portfolio has been a cornerstone of financial advice. The idea that investors should favor diversified portfolios of stocks and bonds is rooted in the principle that bonds’ steady cash flows and appreciation during stock market declines offset short-term losses in an equity portfolio.
However, recent market performance has challenged this notion. Bonds have failed to offset losses in stocks, and U.S. equity benchmarks have outperformed U.S. bond benchmarks, despite bonds offering their most attractive yields in years. The Bloomberg U.S. Aggregate Total Return Index has returned 4.6% year-to-date, compared with a more than 25% return for the S&P 500 when dividends are included.