Reports of the 60/40 portfolio’s death are greatly exaggerated
A look at the returns we can expect from a balanced portfolio of 60% equities and 40% bonds.
Written by Patryk Dyjecinski

IFA and Founder of Clara Wealth

A 60/40 portfolio is one that consists of 60% equities and 40% bonds. The idea behind this allocation is to provide a balance between the potential for high returns from equities and the stability and income provided by bonds.
The allocation to bonds also provides an important source of diversification. Bonds and equities are typically negatively correlated, meaning that when equities go up, bond prices tend to go down, and vice versa.

Clara Wealth’s 60/40 portfolio declined 8.6% in 2022 (compared to -9.55% for the relevant Investment Association benchmark and -11.2% for the popular Vanguard Lifestrategy 60 fund). It was a painful period for multi-asset investors that raised doubts about the viability of this strategy for some.  

However, we need to put this in perspective. The annualised return for the 10 years to the end of 2022 was 6.9% for a globally diversified 60/40 portfolio[1]. In the nine years prior to 2022, a globally diversified portfolio posted a lofty 8.9% annualised return, despite the low interest rate environment. 

It has taken a meaningful reset in asset markets to bring us to this point, and at considerable pain for bondholders. However, lower prices mean higher expected future returns. With higher yields, bonds can once again provide a source of income and a potential safe haven. At lower valuations, equities also offer a more attractive entry point.

With these more favourable valuations, Vanguard’s modelling shows that the long-term return outlook for the 60/40 portfolio has notably improved. Vanguard are the second largest fund manager in the world and largely responsible for creating the modern index (or ‘passive’) fund. Their funds feature in many of our client’s portfolios.

The chart below shows Vanguard’s range of expected annualised returns over the next 10 years for a global 60/40 portfolio as of year-end 2022 relative to 2021. Expected returns have improved, with less downside risk .

Their models suggest 60/40 investors can reasonably expect anywhere between 4.3% and 7.9% each year over the next decade. That’s up from their 2021 year-end expectations of between 1.8% to 5.3%. 

While equities tend to gain much of the attention, more of the improvement in their projections stems from fixed income, with expected returns more than twice as high than they were going into 2022. Far from being dead, they are arguing that the 60/40 portfolio is poised for another strong decade.

If you are a client of Clara Wealth Management, then you will know that we eschew short term trading, market timing, active management and other such behaviours that lead to poorer returns in the longer term. 

The investment industry will always provide a lot of short-term noise and a swathe of one-year market projections (guesses really) but we focus on the medium to long term. We also believe that the ‘balanced’ 60/40 portfolio is poised for another strong decade and that reports of the 60/40 portfolio’s death are greatly exaggerated.

Please get in touch at or on 0207 097 4968 if you wish to discuss your investments or have any other questions. You can read about our evidence based investing philosophy here.

Past performance is not a reliable indicator of future performance. The value of investments may go down as well as up and you may get back less than you invest.

[1] Vanguard calculations in GBP, based on data from Refinitiv. Calendar-year 2022 returns from 31 December 2021 to 31 December 2022 were -9.0% for the 60% equity/40% bond portfolio. Equity comprises UK equity (MSCI UK Total Return Index) and global ex-UK equity (MSCI AC World ex UK Total Return Index). Fixed income comprises UK bonds (Bloomberg Sterling Aggregate Bond Index) and hedged, global ex-UK bonds (Bloomberg Global Aggregate ex Sterling Bond Index Sterling Hedged). UK equity home bias: 25%, UK fixed income home bias: 35%. 10-year annulised returns of 6.9% based on data between 31 December 2012 and 31 December 2022.