An investor who put 100,000 dollars into a mix of 60% S&P 500 and 40% Bloomberg US Aggregate bonds on January 1, 2022 had about 84,200 dollars twelve months later. The mix lost 15.79% that year, against 18.11% for the S&P 500 alone. Fourteen years earlier the same two halves had moved in opposite directions: in 2008 the S&P 500 lost 36.55% and 10-year Treasuries gained 20.10%.
A 60/40 portfolio holds 60% of its money in stocks and 40% in bonds and is traded back to those weights when market moves push them apart. In a common US version, the stock side follows the S&P 500 or the total US market and the bond side follows the Bloomberg US Aggregate index of investment-grade bonds. The stocks supply most of the long-run growth, and the bonds supply income and a narrower range of yearly results.
Where the 60/40 split came from
Vanguard's Wellington Fund, a mix of stocks and bonds, has paid a quarterly dividend since 1930, 22 years before the theory behind such funds was published.
The theory arrived in 1952, when Harry Markowitz published "Portfolio Selection". He showed that combining assets whose returns do not move in step lowers the risk of the whole portfolio for a given expected return, and he shared the 1990 Nobel prize in economics for it. Modern portfolio theory, built on his work and on William Sharpe's, became the basis for a standard portfolio of roughly 60% stocks and 40% bonds.
Other round-number rules exist. Warren Buffett told the trustee of his wife's inheritance to put 90% in a very low-cost S&P 500 index fund and 10% in short-term government bonds.
60/40 portfolio returns since 1928
The table gives the range of calendar-year returns for five stock and bond mixes from 1928 through 2025. The figures are nominal and before fees and taxes.
| Stocks / bonds | Average annual return | Best year | Worst year |
|---|---|---|---|
| 100 / 0 | 11.8% | 54.0% | -43.3% |
| 80 / 20 | 10.4% | 43.6% | -35.1% |
| 60 / 40 | 9.1% | 33.1% | -26.9% |
| 40 / 60 | 7.8% | 29.3% | -18.7% |
| 0 / 100 | 5.2% | 32.6% | -12.9% |
Source: Vanguard, range of calendar-year returns 1928 to 2025. Stocks are 100% US until 1969, then 60% US and 40% international. Bonds are 100% US until 1990, then 70% US and 30% international.
Moving from all stocks to 60/40 cost 2.7 points of average return in this data and cut the worst year by 16.4 points.
A longer series starts in 1901. A US 60/40 portfolio returned a mean of 4.89% a year after inflation from 1901 to 2022, with a standard deviation of 13.46%. It had a positive real return in 66.39% of years, and its deepest real drawdown was 44.88%. One unit of currency invested in 1901 grew 339 times in real terms by the end of 2022. In Japan over the same period, a domestic 60/40 portfolio returned a mean of 2.95% a year after inflation and had a drawdown of almost 98%.
Since 1900 there have been six periods, averaging 11 years each, in which a US 60/40 investor broke even or lost money after inflation. Each began after a strong run, when stocks, bonds or both were expensive. From early 2009 to the end of 2021 the same portfolio earned about 9.4% a year above inflation. Since 1979, when the Bloomberg US Aggregate index began, it has returned 10.2% a year, 6.8 points above inflation.
How far a 60/40 portfolio has fallen in past crashes
Calendar years understate losses, because a decline can start in one year and end in another. Measured from peak to trough and after inflation, with 10-year government bonds as the bond half, the US record back to 1871 shows 19 bear markets for stocks and 11 for a 60/40 portfolio. Six of the declines:
- Great Depression: the 60/40 portfolio fell 52.6%, against 79.0% for stocks.
- Early 1970s inflation: 39.4% for 60/40, 51.9% for stocks.
- Dot-com bust, to September 2002: 24.7% for 60/40, 47.2% for stocks.
- Global financial crisis, to February 2009: the 60/40 portfolio stood 23.7% below its previous high, stocks 54% below.
- March 2020: an 8.5% decline for 60/40, too small to count as a bear market.
- 2022 bond bear market: stocks regained their previous high in September 2024 and the 60/40 portfolio in June 2025. On a pain index that combines depth and duration, it is the only episode in 150 years that was worse for the 60/40 portfolio than for stocks.
With world stocks in place of US stocks, a 60/40 mix of MSCI ACWI and the Bloomberg US Aggregate fell 35.7% in nominal terms from October 2007 to February 2009.
Why stocks and bonds fell together in 2022
Bond prices fall when interest rates rise. From March 2022 to July 2023 the Federal Reserve raised the federal funds rate from 0% to 0.25% up to 5.25% to 5.50% to bring inflation down. Higher rates cut the price of existing bonds and the value investors put on future company profits at the same time, so both halves of the portfolio were repriced by the same move.
The 10-year Treasury returned minus 17.83% in 2022, its worst calendar year in a series that starts in 1928. In the same data, the S&P 500 and the 10-year Treasury lost money in the same calendar year five times: 1931, 1941, 1969, 2018 and 2022. In the first four, the bond loss was between 0.02% and 5.01%.
Balanced funds took similar losses. The iShares Core 60/40 Balanced Allocation ETF fell about 17% in 2022, and Vanguard Balanced Index Fund had its worst quarter of the ten years to 2025 in the second quarter of 2022, at minus 12.14%.
Stock and bond correlation from 1901 to 2026
The correlation between US stocks and bonds was 0.19 from 1901 to 2022, low and positive. In the UK the figure was 0.49 and in Europe 0.62.
Over the 25 years to June 2026, US stocks and bonds lost money in the same month 14% of the time. Over the five years to June 2026 the share was 28%, and over three years 22%. Both rose in 50% of months over those three years, against 40% over 25 years. In the worst tenth of stock market months of the last three years, stocks lost nearly 5% on average and core bonds about 1.7%.
Since 2020, bonds had a negative return in 17 of the 19 months in which equities fell 2% or more, including March 2026, when an oil price shock tied to Iran made it the second weakest month for 60/40 portfolios since 2022. In slowdowns driven by weak demand, yields typically fall and bond prices rise. Supply shocks that lift prices can push bond prices down along with stocks.
Rates rose again in 2026. On September 23 the 10-year Treasury yield passed 5.1%, its highest level since 2007, the S&P 500 fell 0.7% and the iShares 60/40 ETF lost 1% in the day.
The recovery from 2023 to 2025
After 2022 the S&P 500 returned 26.06% in 2023, 24.88% in 2024 and 17.78% in 2025. The 10-year Treasury returned 3.88%, minus 1.64% and 7.80%. Vanguard Balanced Index Fund Admiral Shares returned 13.58% in 2025 and 9.50% a year over the ten years to December 2025, a period that includes 2022.
Rebalancing a 60/40 portfolio
Without rebalancing, the stock share of a 60/40 portfolio rises in every year that stocks beat bonds. A portfolio of 60% global stocks and 40% global bonds set up at the end of 2003 and never rebalanced held 80% in stocks by 2022, with the risk of a far more aggressive portfolio.
There are three common ways to bring it back:
- Calendar rebalancing trades back to 60/40 on a fixed date, such as once a year or once a quarter, whatever the drift.
- Threshold rebalancing trades only when an asset has drifted by a set amount, such as 5 percentage points, so 60% stocks would be reset at 65% or 55%.
- Calendar and threshold together checks the portfolio on a schedule and trades only if the drift has passed the threshold on that date.
In simulations of volatile markets, annual rebalancing was more efficient than quarterly or monthly rebalancing, because bid and ask spreads widen when markets swing and frequent trading can reverse itself. Rebalancing every two years was too slow. New contributions and dividends can go to the underweight asset and withdrawals can come from the overweight one, which reduces trading. Rebalancing inside tax-advantaged accounts first reduces the tax bill.
In one of the worst stock market months of the three years to June 2026, a 100,000 dollar 60/40 portfolio would have seen its stocks fall from 60,000 to about 57,000 dollars and its bonds from 40,000 to about 39,300 dollars. Bonds would then be about 41% of the total. The portfolio is then worth about 96,300 dollars, and selling about 800 dollars of bonds to buy stocks restores the 60/40 split.
40/30/30, 50/30/20, risk parity and other variants
Since 2022, several large asset managers have published allocations meant to replace or extend the 60/40 mix. Most of them add private assets or strategies that can go short. The main ones:
- 40/30/30
- Proposed by KKR in May 2022: 40% public equities, 30% traditional bonds and 30% alternatives, with the alternatives split into 10% private infrastructure, 10% private real estate and 10% private credit. The idea is that infrastructure and real estate often have inflation-linked cash flows and that private credit pays a floating rate, which shortens the duration of the income sleeve.
- 50/30/20
- Suggested in Larry Fink's 2025 letter to BlackRock shareholders as 50% stocks, 30% bonds and 20% private assets such as real estate, infrastructure and private credit.
- Risk parity
- Sizes each asset by the risk it contributes to the portfolio. Because bonds swing less than stocks, a risk parity portfolio holds more of them and often uses leverage. Bridgewater launched its All Weather strategy in 1996, originally for Ray Dalio's trust assets, to hold up across shifts in growth and inflation.
- Liquid alternatives
- Long and short strategies held in mutual funds or ETFs, such as market neutral equity and managed futures. In a historical analysis, replacing part of a stock and bond portfolio with 20% liquid alternatives raised returns from 6.7% to about 9.2% at the risk level of a 60/40 portfolio. Our guide to investing in hedge fund strategies with little money covers how these funds are built and what they charge.
In 2022 the RPAR Risk Parity ETF, which held about 120% of its assets in exposure spread across long TIPS, long Treasuries, global stocks, gold and commodity producers, returned minus 22.81%, against minus 15.79% for the 60/40 mix. Its long TIPS lost 36.38% and its long Treasuries 22.50% in the first three quarters of the year alone.
Adding commodities, private equity, infrastructure, real estate or inflation-linked bonds to a 60/40 portfolio has raised returns and raised risk by more, which lowered the Sharpe ratio.
Balanced funds and target-date funds
Several funds hold a 60/40 mix in a single product and rebalance it internally:
- Vanguard Balanced Index Fund (VBIAX) tracks the CRSP US Total Market Index with about 60% of its assets and the Bloomberg US Aggregate Float Adjusted Index with about 40%, for total annual expenses of 0.07%.
- iShares Core 60/40 Balanced Allocation ETF (AOR) holds seven ETFs for a net expense ratio of 0.15%. Its stock and bond holdings are global, with about 65% of its exposure in US issuers in September 2026.
- Vanguard Wellington Fund is a balanced fund whose stocks and bonds are chosen by an outside firm, Wellington Management, and the evidence on active versus passive funds applies to it.
Target-date funds move from mostly stocks to a more balanced mix as a chosen retirement year approaches, along a schedule called a glide path. Target-date strategies held 4.8 trillion dollars at the end of 2025, up 20.3% in a year. The median equity allocation for an investor 45 years from retirement was 93%, and one index series, BlackRock LifePath Index Growth, keeps 50% in equities at the retirement date. The asset-weighted average expense ratio for target-date mutual funds was 0.27% in 2025.
This article is general information, not investment advice.
Frequently asked questions
What is the 60/40 portfolio rule?
It is an allocation that keeps 60% of a portfolio in stocks and 40% in bonds and trades back to those weights when market moves push them apart. The stock side usually tracks a broad index such as the S&P 500 or the total US market, and the bond side usually tracks the Bloomberg US Aggregate index of investment-grade bonds.
What did a 60/40 portfolio return in 2022?
A mix of 60% S&P 500 and 40% Bloomberg US Aggregate lost 15.79% in 2022. The S&P 500 lost 18.11% and 10-year Treasuries lost 17.83%, their worst calendar year in data going back to 1928. The iShares Core 60/40 Balanced Allocation ETF fell about 17%.
Is a 60/40 portfolio still a good idea?
From 1928 to 2025 a 60/40 mix averaged 9.1% a year, with a worst calendar year of minus 26.9% against minus 43.3% for all stocks. Since 2022 stocks and bonds have fallen together more often than in the previous two decades, which reduces the cushion bonds provide. This article is general information, not investment advice.
What is the main problem with the 60/40 portfolio?
Its protection depends on bonds holding up when stocks fall. That typically happens in slowdowns driven by weak demand, when interest rates fall. When inflation drives rates up, as in 2022, both halves can lose at once. Between 1928 and 2022 the S&P 500 and 10-year Treasuries fell in the same calendar year five times, and 2022 was the only one in which both fell by more than 10%.
What is the Buffett 90/10 rule?
In his 2013 letter to Berkshire Hathaway shareholders, Warren Buffett wrote that the trustee for his wife's inheritance should put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. The 70/30 split sometimes attributed to him does not appear in that letter. From 1928 to 2025 a 90/10 mix had a worst calendar year of minus 39.2%, against minus 26.9% for 60/40.