Monthly returns on the 60/40 portfolio
Source: Bloomberg Finance, L.P., as of January 31, 2022. 60/40 portfolio refers to 60% S&P 500 and 40% Bloomberg U.S. Aggregate Index.
- The balanced 60/40 portfolio, long the backbone of many retail investors’ portfolios, turned in its worst monthly performance in January since the COVID-induced market collapse in February and March 2020, as both stock (-5.17%) and core fixed income (-2.15%) fell.1
- As the chart shows, it’s not entirely uncommon for the 60/40 portfolio to experience a monthly decline. Yet the macro outlook that has taken shape in early 2022 could be a potential warning sign for investors across traditional markets.
- Core fixed income’s difficulties have been well-documented as it continues to face significant downside risks when rates rise and little upside if rates fall. However, the environment for stocks, the backbone of the 60/40, has suddenly turned more challenging following a banner year in which the S&P 500 rose 28%.
- As the calendar year turned, equity investors shifted their attention toward several notable challenges, including high and rising inflation and the prospect of four to five Fed rate hikes this year.
- Despite the significant challenges, opportunities remain in pockets of both credit and equity markets. To find it, however, investors may be wise to adopt a more active approach to navigate today’s challenges and seek alternative ways to generate returns and manage risk.
