The popular 60/40 portfolio — made up of 60% S&P 500 stocks and 40% bonds — is back. And its future looks brighter than it has in a long time.
The odds the 60/40 portfolio will return at least 7% annualized in the next 10 years have jumped to 40%, says Vanguard. That's up from just an 8% chance in 2021. The 7% return for the 60/40 portfolio is important for several reasons. First, the portfolio is the go-to for most moderate investors — indicating this is a reasonable return expectation for most people. Additionally, 7% is the 60/40 portfolio's annualized return since 1990.
"The case for the 60/40 (balanced) portfolio is stronger than in recent memory," Vanguard said.
60/40 Portfolio Rallies With S&P 500
It's not much of a leap to expect good things from the 60/40 portfolio. It's already happening.
The Vanguard Balanced Index Fund Admiral Shares (VBIAX), which puts 60% in stocks and 40% in bonds, is up 5.7% this year through March 31. That already tops the fund's 4.9% annualized return in the past three years. And it's more than half the fund's 8.1% annualized return in the past 10 years.
All of the solid gains are due to the stellar run by S&P 500 stocks this year, which account for 60% of the portfolio. The Vanguard S&P 500 ETF is up 9.1% this year. And that's following a 24.3% gain in 2023.
Bonds Holding Up Better This Year
What about the bond portfolio or the remaining 40% of the 60/40 portfolio? It's at least not hurting the portfolio anymore.
Just this year, the Vanguard Total Bond Market ETF is down just 2.3%. But that's actually tolerable as the ETF is now yielding 4.5%. Overall, the bond portion of the 60/40 portfolio is moving higher on a total return basis. That sure beats 2022, when broad bond ETFs fell 15.2%, offering little respite from the S&P 500's nearly 20% decline.
So if you've been holding onto the 60/40 portfolio hoping for better returns, it's likely worth hanging on a little longer.
The Return Of 60/40
| Period | VBIAX return (60/40 portfolio) |
|---|---|
| Month-end | 2.29% |
| 3-month | 5.74% |
| YTD | 5.74% |
| 1-year | 17.74% |
| 3-year | 4.85% |
| 5-year | 8.83% |
| 10-year | 8.11% |
