Need to Know: Why the 60/40 model suddenly has life again
The good ol’ 60/40 portfolio, designed to produce decent returns in all environments, is having one of its worst years ever. Going by the simplest possible construction — 60% in the S&P 500
40% in a 10-year Treasury — the -15.3% performance is the third-worst showing since 1928, with only the Great Depression of 1931 and the subsequent 1937 crash producing worse results. And keep in mind, people were talking about 60/40 being dead even before this year, due to the paltry income generated on the fixed-income side.
Compiled by Ben Carlson using NYU data.
But suddenly, the 60/40 model has some life again. The Great Tumble or whatever we’re going to end up calling 2022 has put both stocks and bonds in a better starting position for future returns.
“As prices have declined, those expected returns have gone up,” says Andrew Sheets, chief cross-asset strategist at Morgan Stanley. “Over the next decade, they suggest a 60/40 portfolio could do better than recent experience.”
The chart makes that clear. U.S. investors in a 60/40 portfolio could be expected to see roughly the return of the last 20 years, of 6% or so. European investors are in better shape, with 60/40 expected to produce returns around 8%.
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Bank of America
and Goldman Sachs
wrap up earnings season for the big banks, and IBM
results are due after the close.
The National Association of Home Builders releases its housing market index shortly after the open.
The Farnborough International Air Show starts today, with the focus on Boeing
securing orders for the troubled 737 Max aircraft.
U.S. stock futures
were in rally mode to start the week, with the Dow contract
up 271 points. Gold
futures rose, while the yield on the 10-year Treasury
edged up 2 basis points to 2.95%. The dollar
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Bed Bath & Beyond
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The judge overseeing Twitter’s
lawsuit against Tesla CEO Elon Musk has a record of siding with sellers.
This $15 billion dispute over oil in Malaysia has its roots in colonial Britain.
The unusual case of Germany’s gigantic pillows.
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