MARKETS & INVESTING
BEYOND 60 / 40
David Aujla Fund Manager , Multi-Asset Strategies ( MAS ) UK team Invesco
Fabio Faltoni Product Director , Multi-Asset Strategies ( MAS ) UK team Invesco
Investing is a challenging endeavour , but there have been periods , notably from the 1980s to the early 2020s , where success seemed more attainable . This era , often dubbed the golden age of investing , saw the prominence of the classic ‘ 60 / 40 ’ portfolio . However , with today ’ s world undergoing seismic shifts , this once-reliable strategy faces challenges . This article explores why the 60 / 40 portfolio thrived in the past and why it may struggle in today ’ s environment , while also presenting alternative approaches to portfolio construction and asset allocation better suited to current challenges . The 60 / 40 portfolio , with its 60 % allocation to equities and 40 % to bonds , was a staple investment strategy during the golden age . In over four decades from 1980 to 2023 , it delivered positive performance in 36 of 43 years , with only major shocks disrupting its success . This approach , static in its allocation , capitalised on
favourable market conditions characterised by strong equity performance and a robust bond market . Recent geopolitical and economic events , such as the COVID-19 pandemic and geopolitical tensions , have ushered in a new era marked by uncertainty . Factors like higher inflation and interest rates have led to increased correlation between equities and bonds , challenging the diversification benefits of the 60 / 40 portfolio . Moreover , bonds , once considered safe havens , have shown vulnerability to market volatility , undermining their role in mitigating downside risk .
The bigger picture One possible response to what might be seen as a 60 / 40 portfolio ’ s loss of balance would be to markedly adjust the ratio of equities to bonds . If the latter are not offering enough downside mitigation , for instance , why not move to a 70 / 30 or even an 80 / 20 allocation ?
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