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July 23, 2021

Is a 60/40 portfolio split up still the way to go?

What's the ideal mix for your retirement savings?

The rule of thumb for retirement portfolios has long been 60/40: 60 per cent in stocks and 40 per cent in bonds. That’s supposed to be approximately the ideal combination of growth and safety.

That’s not just an arbitrary split either. Mutual fund giant Vanguard went back and ran simple model portfolios based on the 60/40 rule and found that, since 1926, an investor with that allocation could have expected an 8.7 per cent annual return, with losses in 21 out of 87 years.

That doesn't sound too bad, although there's lots of debate as to whether those types of returns are feasible with interest rates being so low.


An all stock portfolio certainly juiced the returns a bit further, to 10 per cent — but the volatility was greater, with losses in 25 of the years. An all bonds portfolio reduced that volatility sharply, with losses in just 13 years, but the overall return dropped to an average of just 5.5 per cent.

The trouble is, most investors simply don’t have the stomach to lose a third of their nest egg during a sustained drop in the market, and today’s low yields on bonds and GICs make it virtually impossible for bonds to deliver the same price appreciation they enjoyed over recent decades.

Here's one recent study that looks "under the hood" to help determine which components of average returns may be expected to repeat in the future and, more importantly, which ones may not.

If it's at all accurate, a 60/40 'balanced' portfolio would likely deliver about two thirds of what it has provided historically.

What does your portfolio look like? What adjustments have you made in recent years?

By Gordon Powers, MSN Money



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Gordon PowersGordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a financial services consulting firm. Gordon was a personal finance columnist for the Globe & Mail for many years, has taught retirement planning...