The traditional 60/40 investment portfolio is one of investing’s most recognizable asset allocation strategies, with 60% invested in stocks and 40% in bonds. Historically, the strategy has offered a .
However, recent market conditions, including higher inflation and rising interest rates, have led some investors to revisit the strategy and their preferences. While the 60/40 portfolio may not be a one-size-fits-all solution, many financial professionals still view it as a useful starting point for retirement planning.
The strategy is generally assumed to be broadly diversified rather than concentrated in a small number of individual holdings, according to Carla Adams, founder and advisor at Ametrine Wealth in Lake Orion, Michigan. “While there is no official definition of what makes up the equity and fixed income buckets, it is typically assumed that a 60/40 portfolio is highly diversified, as opposed to being made up of just a handful of individual stocks and bonds,” she said in a message.
[Read: ]
Why the 60/40 Portfolio Became the Standard
Historically, stocks have generated higher long-term returns than bonds, making them an important source of growth for retirement savings. , meanwhile, have traditionally provided income and helped reduce portfolio volatility. “The main advantage of a 60/40 portfolio is that the bond allocation moderates the risk of the portfolio,” said Robert R. Johnson, professor of finance at Creighton University’s Heider College of Business, in an email.
For much of the past several decades, stocks and bonds have often performed differently from one another. During stock market declines, bonds frequently held their value or appreciated, helping offset losses in the equity portion of a portfolio.
How a 60/40 Portfolio Works
The basic structure of a 60/40 portfolio is 60% of investments in stocks and 40% in bonds. For instance, a retiree with a $500,000 portfolio would make the following allocations:
— $300,000 to stocks
— $200,000 to bonds
Most investors diversify within both stock and bond categories.
For example, the stock portion may include:
— U.S. large-cap stocks
— U.S. small-cap stocks
— International stocks
— Broad-market index funds
— Exchange-traded funds (ETFs)
The bond allocation may include:
— U.S. Treasury securities
— Investment-grade corporate bonds
— Municipal bonds
— Bond mutual funds
— Bond ETFs
The Importance of Rebalancing
A typical 60/40 investing strategy involves rebalancing. This is because over time, market performance can cause a portfolio’s allocations to shift. For example, a strong stock market may cause a portfolio to become 70% stocks and 30% bonds.
Many financial professionals recommend reviewing portfolio allocations at least annually, although some investors choose to rebalance when allocations move beyond a set percentage. “All investors should establish an investment policy statement and follow it,” Johnson said. “An IPS is a written document that clearly sets out a client’s return objectives and risk tolerance over that client’s relevant time horizon, along with applicable constraints such as liquidity needs and tax circumstances.” It includes a target asset allocation and guidelines on when to rebalance.
[READ: ]
Understanding Sequence-of-Returns Risk
occurs when market declines happen early in retirement. When retirees are withdrawing money from a portfolio that is simultaneously losing value, the combined effect can permanently reduce the amount available for future growth and increase the risk of outliving their savings.
“When a person is within a few years of retirement, say five years, they should begin to reduce their risk exposure in retirement accounts,” Johnson said. “A large downturn in the equity markets immediately preceding retirement can have devastating effects on an individual’s standard of living in retirement.”
A 60/40 portfolio may help reduce sequence-of-returns risk compared with a more aggressive portfolio. The best allocation for you will depend on your overall financial goals, living expenses and risk tolerance.
Does the 60/40 Portfolio Still Work for Retirees?
For some retirees, a 60/40 portfolio allocation provides a reasonable balance between growth and risk management. “Traditionally, this has been viewed by many as a balanced, set-and-forget strategy,” said Bill Packer, chief operating officer of Longbridge Financial in Paramus, New Jersey, in an email. “However, as we age, its suitability changes significantly because your ability to recover from market downturns decreases. This is especially true for retirees who often have income sources that may be not change as needs evolve.”
To find if it’s right for you, you’ll want to consider factors including your age, health and other sources of income. “A strong retirement plan should account for the possibility of market volatility, rising costs like homeowners insurance and property taxes, healthcare expenses, and a retirement that may last way longer than expected,” said Packer. “The goal at the end of the day is to make sure you have the resources and flexibility to support your lifestyle throughout your retirement.”
[Read: ]
Alternatives to the 60/40 Portfolio
Investors today have access to a wider range of retirement investment strategies than previous generations. Here are some alternatives you’ll find:
Target-Date Funds
automatically adjust asset allocations over time. As retirement approaches, a target-date fund gradually shifts toward a more conservative mix of stocks and bonds.
Bucket Strategies
divide retirement assets into different categories based on spending needs over time. For instance, an individual may have a short-term bucket for immediate expenses, an intermediate bucket for income needs over the next several years, and a long-term growth bucket invested primarily in stocks.
Customized Allocations
Some retirees may use allocations that are different than 60/40. For instance, they may opt for 70/30 or 50/50 allocation to stocks and bonds, depending on their timeline and spending needs.
Questions to Ask a Financial Advisor
If you are considering a 60/40 portfolio, it may be helpful to discuss the following questions with a financial professional:
— Is a 60/40 allocation appropriate based on my retirement income needs and withdrawal rate?
— How should I account for sequence-of-returns risk in my retirement plan?
— Would a target-date fund or bucket strategy be more appropriate for my situation?
— How often should my portfolio be rebalanced?
— What fees and expenses are associated with the investments being recommended?
The traditional 60/40 portfolio remains one of the most widely used retirement investment strategies because it is designed to balance growth and stability over the long term.
While rising inflation, higher interest rates and changing market dynamics have sparked debate about the strategy, the 60/40 portfolio remains a useful framework for many retirees. Many financial professionals now view it as a starting point, with the right allocation ultimately depending on factors such as income needs, risk tolerance, retirement goals and an investor’s tolerance to withstand market volatility.
More from U.S. News
originally appeared on
Update 06/22/26: This story was previously published at an earlier date and has been updated with new information.
