Does the 60/40 portfolio still work?

Ask a financial advisor for a “balanced” portfolio and you will most likely be handed some version of this: 60% in stocks, 40% in bonds. Professionals call it 60/40; everyone else just thinks of it as the stocks-and-bonds portfolio. The bond half is meant to cushion the blows when stocks tumble, in exchange for giving up a slice of the upside. Here is how that bargain has actually played out.

What's in it: the allocation

Growth of $10,000

What an investor actually experiences: drawdowns

The stocks-and-bonds portfolio's worst stretch was a fall of -32.3%, during the 2008 financial crisis. That is a serious loss — roughly a third of your money on paper — but it is a world away from the -50.8% halving the S&P 500 handed investors over the same crash, and it healed faster: about 37 months back to even, versus 52 months for stocks alone.

That gap is what matters when the money has a deadline. A saver who needed a house down payment or a tuition check in 2009 could absorb a -32% hit and still have most of their plan intact; an all-stock investor staring at a -50% loss was far more likely to panic and sell at the exact wrong moment. The bond half is the shock absorber that makes that difference.

Results

Here is what the numbers mean in practice. The 60/40 grew at 8.1% a year, turning $10,000 into $59,569 over about 23 years — less than the $113,419 from the S&P 500, but earned with a much gentler ride: volatility of 9.3% against 14.6%.

On a risk-adjusted basis the trade was worth it. Both the Sharpe ratio (0.89 vs 0.81) and the Sortino ratio (1.38 vs 1.24) favor the 60/40, meaning it earned more return for every unit of risk taken. You gave up some raw growth and, in exchange, cut your worst-case loss by a third. For most investors, that is a trade worth making.

Figures are computed from monthly adjusted closing prices over Oct 2003–Jul 2026. Drawdowns are measured at month-end and so understate intra-month extremes.

Methodology

The two instruments

SPY — SPDR S&P 500 ETF Trust

Tracks the S&P 500 — 500 of the largest US companies — and stands in for the "stocks" side of the portfolio. Alternatives include IVV and VOO.

AGG — iShares Core U.S. Aggregate Bond ETF

Tracks a broad basket of investment-grade US bonds (Treasuries, corporate, and mortgage bonds) and stands in for the "bonds" side. A common alternative is BND.

Backtest parameters

Allocation

60% SPY / 40% AGG

Benchmark

S&P 500 (SPY)

Data

Monthly adjusted closing prices (dividends reinvested)

Period

Oct 2003 – Jul 2026 (native ETF history; no synthetic pre-inception splice)

Rebalance

Monthly, at month-end

Transaction costs

None modelled

Advantages

Diversification

Stocks and bonds have historically moved somewhat independently, so a bond allocation cushions the portfolio when stocks fall. The measured effect is a smaller worst-case decline than an all-stock portfolio over the same period.

Better risk-adjusted return

By trading some upside for materially lower volatility, the mix has historically produced a higher Sharpe ratio [risk-adjusted return — how much return you earn per unit of risk taken] than holding stocks alone. In plain terms: you keep most of the reward while taking on much less of the stomach-churning risk.

Simplicity and cost

It requires only two liquid, low-cost ETFs and an occasional rebalance. Infrequent trading keeps costs and taxable events low.

Disadvantages and risks

Concentrated risk despite balanced dollars

Although only 60% of the dollars sit in stocks, on a risk-adjusted basis the large majority of the portfolio's ups and downs still come from the stock side. So a 60/40 portfolio behaves much more like a stock portfolio than the balanced label suggests. Risk-parity approaches exist specifically to address this.

Correlation is not guaranteed

The whole cushion depends on stocks and bonds moving independently. In 2022 both fell together — bonds gave no protection when investors needed it most — and if that pattern persists the diversification benefit weakens.

Only two ingredients

A stocks-and-bonds portfolio leaves out entire categories that can help when both stocks and bonds struggle. Real assets such as gold and commodities, and currencies, tend to behave differently from stocks and bonds — especially during inflation shocks. Rules-based strategies like trend-following (managed futures / CTAs) can generate their own return streams that are largely independent of both, adding diversification that a two-asset portfolio simply cannot.

Inception-date sensitivity

Results depend heavily on starting valuations. Beginning when stocks are expensive (a high CAPE ratio [a price measure comparing prices to a decade of earnings]) or when bond yields are low tends to compress future returns.

Try it yourself

Every number on this page is reproduced by MarketHeist's free portfolio tool — change the weights, tickers, or rebalancing and watch the result update.

Frequently asked questions

What is a 60/40 portfolio?

A portfolio holding 60% stocks and 40% bonds, rebalanced back to those weights periodically. It is what most people picture as a balanced "stocks and bonds" portfolio. In this backtest it is built with the SPY (S&P 500) and AGG (US aggregate bond) ETFs.

Is the 60/40 portfolio dead?

It is not dead, but its tailwinds have faded. The 2003–present record shows solid risk-adjusted returns, yet the low-yield, high-valuation, higher-correlation regime that hurt it in 2022 means forward expectations are more muted than the historical average.

How do you rebalance a 60/40 portfolio?

On a fixed schedule (here, monthly) sell whichever side has grown above its target and buy the other to restore 60% stocks / 40% bonds. Less frequent schedules (quarterly or annual) reduce costs with little change in risk.

Which ETFs implement a 60/40 portfolio?

Commonly SPY, IVV, or VOO for the stock side and AGG or BND for the bond side. This page uses SPY and AGG.

References

1. The 60/40 Benchmark Portfolio — QuantStart
2. Chapter 2: The Benchmark Portfolio 60/40 — Meb Faber
3. iShares Core U.S. Aggregate Bond ETF (AGG)
4. SPDR S&P 500 ETF Trust (SPY)

Educational analysis of historical data, not investment advice. Past performance does not guarantee future results. Backtested results are hypothetical and computed from the MarketHeist portfolio engine on the parameters above.