August 16, 2022

A portfolio of 60% stocks and 40% bonds has been used for decades now as a reliable way for many long-term investors to capture much of the gains of stocks with less volatility overall due to the bonds held in the portfolio. With both stocks and bonds down so far this year, headlines are filled with news of the ‘death’ of the 60/40 portfolio. Is it time for the long-term investor to look for a different portfolio allocation?

Alternatives to the 60/40 portfolio

From analysts on television to articles in financial publications advocating that now is the time to move on from the idea of a traditional 60/40 portfolio. Articles in Barron’s and Kiplinger’s, commentators and analysts on CNBC, Bloomberg and Fox Business News, and even some of the big investment firms like Goldman Sachs and Blackrock have pieces and segments over the past year about changes needed to the standard 60/40 portfolio.i

Overall, the theme of most advocating for changes to the 60/40 portfolio is to adjust the balance to include “alternative” investments like hedge funds, cryptocurrency, long/short strategies, private equity, commodities, and real estate.

For the long-term investor, the discussion of alternative investments needs to include some of the negative considerations, not just the long-shot possibility of a single large return. These investments can carry high expenses, long lock-in terms, very high initial investment, significant risk, and often come with less than spectacular results. We have discussed some of the issues with alternative investments in previous newsletters and blogs that are available on our website,

When we advise our clients at Prato Capital about changes to their portfolio, part of our discussion includes the impact on their overall portfolio and their Financial Life Plan (FLP).

  • Are these changes going to realistically increase the overall expected returns?
  • Are any changes going to increase the overall risk?
  • Are these changes necessary to achieve the goals of a client’s FLP?

The 60/40 portfolio

The idea of the 60/40 portfolio has been around for decades. Investors can capture much of the gains from stocks over the long-term and bonds will provide some income and buffer some of the volatility when stocks decline.

In an article published by Roger Aliaga-Díaz, the Chief Economist at Vanguard, he found a 60/40 portfolio had an annualized return of 8.8% since 1926. He also found that with a monthly review since 1976, “total returns of both U.S. stocks and investment-grade bonds have been negative nearly 15% of the time. That’s a month of joint declines every seven months or so, on average.” But when looked at over a longer time period, Dr. Aliaga-Díaz says, “Over the last 46 years, investors never encountered a three-year span of losses in both asset classes.”¹

Negative returns at the same time for both stocks and bonds are not uncommon over the short-term, however as the time horizon increases, negative returns at the same time become much less common.

Diversification and a better alternative

When analysts refer to the 60/40 portfolio, they often mean a hypothetical portfolio consisting of the S&P 500 index and the Bloomberg US Aggregate Bond Indices as its components in a 60% and 40% ratio respectively. There are plenty of Exchange Traded Funds (ETFs) that track these benchmark indices and many investors can duplicate this fairly easily.

At Prato Capital, we believe that a diversified portfolio of stocks and bonds is much more than just these two indices. The percentage of stocks and bonds may be 60/40 but what is inside the portfolio can be significantly different.

A diversified portfolio of stocks can include both US and International stocks, small-cap and large-cap companies, and value and growth. This will likely include more than just the largest 500 companies in the US tracked by the S&P 500.

A diversified portfolio of bonds can include US and International bonds, government and corporate, long and short durations, and investment grade or high-yield. Since bonds are so sensitive to interest rates and interest rate movements, the returns of these portions of the bond market can be significantly different. This is a case where different sectors of the bond market may be more appropriate at different times depending on interest rates.

The correct percentage of stocks and bonds for a truly diversified portfolio is different for every investor and is best when discussed as part of an investment strategy that complements a complete financial plan.


At Prato Capital, we are always looking for the best investment choices that can help our clients achieve the goals of their Financial Life Plan. Having looked at ‘alternative’ investments over the years, it is difficult to recommend investments with higher costs, increased risk, and less liquidity, especially when past results have often fallen short of a standard 60/40 portfolio over the long-term. We feel that a portfolio of stocks and bonds tailored to the needs and risk tolerance of each individual client still meets the needs of most of our clients and most other long-term investors.

“The reports of my death have been greatly exaggerated.” – Mark Twain.

Gregory, Gabriella, Brian, Samer and Chris

Prato Capital: Where Integrity Meets Discipline

¹Aliaga-Díaz, R. (2022, July 1). “Like the phoenix, the 60/40 portfolio will rise again”. Retrieved August 11, 2022, from The Vanguard Group,


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