Boring investing still works – a wealth of common sense

The 60/40 portfolio died on October 16, 2019 due to complications from low interest rates and a serious case of Fed manipulation. This is the 27th time that 60/40 has died in the past decade, but enemies of market timing, day traders and alternative investments are hopeful that this time it will survive.

I couldn’t help it. The financial media continued to declare it dead year after year.

Low bond yields made it extremely difficult for investors looking for balanced portfolios.

When I wrote my eulogy, the 10-year Treasury bond was yielding about 1.5%. During the first days of the pandemic, it would fall even further, to below 0.5%.

Then interest rates went up screaming, from the floor to about 5%. In 2022, it actually felt like the 60/40 portfolio was dead. It was hit by a truck in one of the worst years ever for the combination of shares and bonds.

The good news is that short-term government bonds and cash have been deployed to help on the fixed income side of things, but I understand why so many investors were hesitant to own bonds after that carnage.

If you invested in a total bond market fund, you experienced the worst fixed income returns on high quality bonds in history.

In the 2010s, when bond yields were so low, investors were pushed not only onto the risk curve, but also onto the complexity curve. There is a perception among certain asset managers that you need alternatives, leverage, private investments, etc. to succeed.

I’m not completely against this kind of investment. They are not suitable for many investors, but for those who understand how they work and invest sensibly, these types of investments can work.

But as you introduce more complexity into your portfolio, managing it can become much more difficult. The costs are higher, they are less liquid, it is more difficult to restore balance and there is not nearly as much transparency. You need to know what you are doing when you venture beyond simple portfolios and even then you may not be satisfied with the results.

That said, the 2022 bond market carnage left fixed income investors with principal losses, but also much higher returns. Bonds don’t knock it out of the park because bonds are boring investments. But since 2022, higher returns have led to slow and steady gains.

And if you look at something like a simple three-fund Vanguard portfolio, boring means you’ll have a pretty good year in 2025, and that includes bonds:

International stocks are up 30%. US stocks are up almost 20%. But look at bonds: an increase of almost 7%! That’s a great year for fixed income.

All in all, a 60/40 portfolio with three funds¹ will have increased by almost 16% in 2025. That’s pretty good.

This portfolio has increased by 7.8% per year in the 2020s. That number includes the worst bond market crash in history.²

The 60/40 portfolio wasn’t dead, just dormant for a year or two.

Boring is still beautiful when it comes to investing.

Michael and I talked about regular wallets and much more in this week’s Animal Spirits video:



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Further reading:
A eulogy for the 60/40 portfolio

Here’s what I’ve been reading lately:

Books:

¹40% US stocks, 20% international stocks and 40% bonds.

²This portfolio fell by 16% in 2022.