The 60/40 Portfolio: When You Need It Most, It May Not Work

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One of the most common investment strategies is the 60/40 portfolio, which involves building a portfolio which contains 60% equities and 40% bonds. Going this route can make portfolio-building simple, but it’s not right for everyone.

In theory, a 60/40 mix is designed to minimize risk while generating a consistent rate of return over time, even during periods of volatility. This is generally taken to mean that you allocate your invested assets 60% to equities for their attractive record of long-term growth of capital, and 40% to bonds for their income, and especially for protection against the volatility of equities.

The biggest disadvantage is that, over the long-term, a 60/40 portfolio will underperform an all-equity portfolio, and over very long time periods it will underperform by a significant amount because of the influence of compounding interest. 

If there is one thing to take away, it should be the reminder to never stop the compounding. when prices go down, that’s your cue to buy more! We suggest holding established stocks that pay dividends rather than bonds, to get a balance of growth and stability. Always remember to stay disciplined and stick with your long-term plan.

We hope you enjoyed this month’s Client’s Corner. Please do not hesitate to reach out if you have any questions or feedback.

Thinking about hiring a professional to help you implement a long-term financial strategy? We would be more than happy to set up a 30-minute discovery call to get a better understanding of your unique situation.

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