In 2022, the global financial markets recorded sharp losses in both stocks and bonds, wreaking havoc on investors’ portfolios everywhere, including the conventional 60/40 investment portfolio.
For decades, the 60/40 portfolio—60 percent in equities and 40 percent in bonds—has been the standard practice. This diversified asset allocation aims to minimize risk and generate returns during volatility in the international financial markets. As a result, it has been the go-to strategy for investors who do not possess a high risk tolerance but still desire growth potential.
But this did not occur last year. Instead, according to data from BlackRock, 60/40 portfolios suffered their worst performance since 1999, posting a loss of 17 percent. This is far from the average annualized return of 8.8 percent between 1926 and 2021. Over the last 90 years, there have been only two calendar years when equities and bonds posted simultaneous losses: 1931 and 1969 (with a near miss in 2018)….