The 60/40 portfolio’s glaring weakness

The 60/40 portfolio is the default solution for millions of people who don’t want to spend time agonising over their investments. The portfolio’s strong track record, simplicity, and appealing balance of attack and defence has convinced a broad swathe of the public that they can dip their toe into the stock market without getting their leg bitten off. The problem is the 60/40’s track record conceals a major weakness. While its long-term returns are good, those numbers are the average of different eras. Decompose the 60/40’s returns by these divergent periods, and the industry standard portfolio looks more like a car that cruises along in fair weather, but struggles to start on cold mornings. Here’s the break down in inflation-adjusted annualised returns (GBP): Period60/40 annual return (%)1900-2025 41947-19741.71975-20256.11947-20254.5 The 60/40 portfolio is 60% World equities and 40% All Stocks gilts – rebalanced annually. Data from JST Macrohistory 1, The Big Bang 2, Before the Cult…