Annualised performance
Looking across different investment periods of 10, 20, and even 30 years, the 60/40 portfolio has consistently delivered average annual returns of around 7% to 8%. This demonstrates its historical effectiveness as a balanced investment strategy. For this article, I have referenced data using proxies that closely reflect the S&P 500 and the Bloomberg US Aggregate Bond Index.
The idea behind a 60/40 portfolio is that equities and bonds often move in opposite directions across market cycles. This diversification supports capital growth while providing a degree of capital preservation.
That was the case — until 2022, when a combination of surging inflation, sharp interest rate hikes and ongoing geopolitical tensions caused both equities and bonds to decline simultaneously. As a result, the 60/40 portfolio dropped by 23% from its peak in 2021. The magnitude of that pullback led many investors to panic and question whether the 60/40 model still made sense.
See also: Investing during a crisis
Has a similar situation occurred before?
One of the earliest and most notable periods where both equities and bonds struggled was from 1969 to 1970. During that time, US equities, as measured by the S&P 500, fell nearly 9%, while bond returns were also negative due to rising inflation and tightening monetary policy. Although the 60/40 approach was only beginning to gain traction then, a similarly balanced portfolio would have faced the same challenges.
Despite these setbacks, the 60/40 portfolio eventually recovered and continued to grow over time. While fear can elicit strong emotional responses, market memory tends to be short-lived.
Once markets recover, investors tend to forget just how volatile the journey was. In fact, just look at where we are today compared to 2022. As shown in Chart 2, after the sharp decline in 2022, the 60/40 portfolio experienced a steady recovery.
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Despite periods of volatility along the way, the overall trajectory has remained positive, with portfolio balances rising consistently through 2023 and 2024. This reinforces the importance of staying invested, as markets often rebound over time, rewarding long-term discipline and patience.
So, is the 60/40 portfolio still reliable in today’s markets?
For most investors, the answer is yes.
History shows that while the 60/40 portfolio may not always deliver the highest short-term returns, it has performed well over the long run. Although it may lack excitement, it remains effective, especially for those who stay invested through different market cycles. This balanced mix has provided steady returns while helping to reduce extreme volatility.
Furthermore, a 60/40 allocation gives investors an emotional anchor, which is often underestimated. In periods of volatility, investors with fully or heavily equity-based portfolios tend to feel greater stress which can lead to emotional decisions and poor timing. The inclusion of bonds in a 60/40 mix helps to smooth out the ride, build confidence, and encourage investors to stay the course instead of reacting out of fear.
Now, why did I specifically say most investors?
There will always be individuals who prefer to manage their portfolios more actively. They include professionals or highly experienced investors who may adopt different asset allocations or use more advanced strategies. With the right skill, discipline, and track record, they can navigate the markets effectively. For them, a more tailored approach might be appropriate.
However, for the average investor who does not have the time, tools or temperament to manage complex portfolios, the 60/40 model remains a reliable and time-tested framework. It brings structure, balance, and emotional resilience — qualities that are even more valuable in today’s uncertain market environment. Most importantly, it helps investors to take the first step rather than staying on the sidelines.
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So, if the 60/40 portfolio still holds value for most investors, how can we turn that into something practical?
Remember, the beauty of the 60/40 portfolio lies not just in its numbers, but in the structure it provides. That structure encourages better investing behaviour and long-term thinking.
Here are some core principles that form the foundation of a strong investment plan.
Clearly define your investment objective
Ask yourself: for what are you investing? Are you building a fund to buy your first home? Planning for your child’s university education in 15 years? Or preparing for your own retirement two or three decades down the road? Clearly defining your goals gives direction to your entire investment plan.
Acknowledge your time horizon
Once your objective is clear, your time horizon naturally follows. The 60/40 portfolio is best suited for long-term investing, where its benefits become apparent as markets recover and compounding takes effect. That said, even within the 60/40 structure, your investing strategy can be shaped based on your time horizon.
For example, an individual investing for retirement in 25 years might have a different equity-to-bond mix than someone planning for a child’s education in five years. The structure remains consistent, but the strategy adapts to the timeline.
Build your portfolio around discipline rather than prediction
No one can consistently forecast markets, but what we can control are our habits and emotions. Building a disciplined approach increases the probability of long-term success. This includes periodically rebalancing and reviewing your portfolio to ensure it still aligns with your financial objectives.
At the end of the day, investing is not about chasing perfection but building a plan you can stick to. The 60/40 portfolio may not be flawless, but its strength lies in its simplicity, discipline and long-term resilience. For most investors, which is all they need to begin the journey with confidence.
Keef Wong is senior financial services manager at Phillip Securities
