Advisor Training, Consumer Material Alex Strandell Advisor Training, Consumer Material Alex Strandell

Rethinking 60/40 Part 2: What can we learn about the years when stocks and bonds are both negative?

Rethinking 60/40: What can we learn about the years when stocks and bonds are both negative?

In our last blog post, I discussed the underlying reasons for today’s underperformance of 60/40 portfolios, but let’s look at how much of an anomaly today’s times are and where 2022 falls in history. Since 1928, we can glean the underlying reasons a 60/40 portfolio allocation became popular method for investors seeking reliable returns. The chart below shows historical corporate bond yield and the S&P 500® returns by year, demonstrating how often bonds and stocks remained positive. However, looking at the years in which equities and bonds are negative provides important context for the contemporary market environment.

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Advisor Training, Consumer Material Alex Strandell Advisor Training, Consumer Material Alex Strandell

Rethinking 60/40: Part 1-Why investors use 60/40 allocations?

Rethinking 60/40: Why have individuals used 60/40 Allocations for their Retirement Savings?

A portfolio invested in 60% stocks and 40% bonds, commonly known as a 60/40 portfolio, is where many portfolios start before adjusting to a diversified mix based on time horizon, risk tolerance and savings goals. The 60/40 portfolio mix is a tried and true portfolio allocation because it provides market gains during market rallies and fixed income reliability during economic slowdowns. This portfolio is most suitable when interest rates go down, as equities perform well. When interest rates rise, equity returns typically fall.

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Advisor Training, Economic Updates Tim Pierotti, Chief Investment Officer Advisor Training, Economic Updates Tim Pierotti, Chief Investment Officer

What Did We Learn This Week? (02/03/2023)–When the Pain Trade is Higher

…I was short a lot of the same stocks as other traders and we were all trying to reduce exposure and manage risk at the same time pushing our respective positions higher and exacerbating our losses. We were well into the start of the Great Financial Crisis bear market, but in May, due to some piece of better economic data, the counter-trend rally was violent and I wasn’t handling it particularly well…

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Advisor Training, Economic Updates Tim Pierotti, Chief Investment Officer Advisor Training, Economic Updates Tim Pierotti, Chief Investment Officer

What Did We Learn This Week? (10/20/2022)–60/40

This week Tim discusses the long-term view on the 60/40 portfolio. The traditional success of a 60/40 equity and bond allocation has been undermined by elevated inflation over the past year. While inflation will come down over the coming months, the secular risks such as deglobalization and aging demographic will lead to a more inflationary environment over the coming decade. The result is that a more defensive allocation that includes principal protection is warranted.

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Economic Updates, Advisor Training Tim Pierotti, Chief Investment Officer Economic Updates, Advisor Training Tim Pierotti, Chief Investment Officer

What Did We Learn This Week? (10/13/2022)—The Other Oil Cartel

In this week’s post, Tim investigates oil supply and demand and the lack of chronic and structural investment in the refining space. He argues that while the US has become far more energy independent, the benefits may not be as disinflationary as we may hope.

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Economic Updates, Advisor Training Tim Pierotti, Chief Investment Officer Economic Updates, Advisor Training Tim Pierotti, Chief Investment Officer

What Did We Learn This Week? (10/06/2022)—Sell-side Research

In this week’s essay, Tim discusses the problem of trying to value the equity markets based off consensus forward estimates. Wall Street estimates will always be behind the curve in a downturn and this time is no different. Stocks may look “cheap” on current estimates but those estimates are always far too high ahead of recessions.

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