60/40 Portfolio Blog

Passive investing has long been favored by numerous economists and investors due to its straightforward approach and the belief that markets are largely efficient. As Nobel Laureate Merton Miller once stated, “I favor passive investing for most investors, because markets are amazingly successful devices for incorporating information into stock prices.”

While this statement holds true, passive investing can also allow portfolios to drift away from their intended goals over time. Growth rallies like those experienced in the post-COVID period have caused misalignments not only between equity and fixed income allocations, but also across investment styles and geographic exposures.

The chart below illustrates how, in just under seven years, a 60% Stock and 40% Bond portfolio has shifted to a 75% Stock and 25% Bond allocation. This increase in equity exposure — and potential rise in volatility — may cause portfolios to become misaligned with investors’ current financial objectives and risk tolerance.

We would encourage investors to evaluate their portfolio to ensure their allocations and risk levels correlate to their goals, time horizon, objectives and unique circumstances.

Source: Morningstar & Fidelity Bank Wealth Management. Asset allocation at the start of 2019 assumes 60% weight to global equities and 40% weight to U.S. fixed income. U.S. Value: Equal-weighted Russell 1000 Value and Russell 2000 Value, U.S. Growth: Equal weighted Russell 1000 Growth and Russell 2000 Growth, International: MSCI ACWI ex-US, Fixed Income: 10% Bloomberg Global HY Index and 30% Bloomberg U.S. Aggregate. Portfolio not rebalanced starting Jan ’19 through September ’25.