The 60/40 portfolio has long been a popular investment strategy, allocating 60% to stocks for growth and 40% to bonds for stability. The idea is that when one side is under pressure—typically stocks—the other, usually bonds, helps balance things out.
For decades, that’s largely held true. But things started to shift in 2022.
That year, the 60/40 portfolio saw a significant drop of approximately 17%, its worst calendar-year performance in decades. What made the decline unusual wasn’t just its size—it was that stocks and bonds both fell at the same time, undercutting the balance the strategy is known for.
Still, that doesn’t mean the 60/40 is obsolete. It posted strong rebounds in 2023 and 2024, returning over 15% in each of those years.* But for investors thinking about retirement or protecting the wealth they’ve built, it’s worth asking: is this strategy still enough on its own in today’s environment?
What is a 60/40 Portfolio?
A 60/40 portfolio aims to balance risk and reward by investing in two primary asset classes:
- Stocks (60%) – Historically, equities have delivered higher long-term returns compared to other asset classes, offering growth potential.
- Bonds (40%) – Bonds typically offer more price stability and predictable income, which can help cushion the impact of stock market volatility.
The core idea is that these two assets have traditionally moved in different directions. When stocks fall, bonds have often helped stabilize returns. That balance made the 60/40 strategy a solid option for people looking to grow their wealth without taking on the full risk of an all-stock portfolio.
It also appeals for its simplicity. With just a few broadly diversified funds, investors can set a target allocation, check in once or twice a year to rebalance, and let the plan play out over time.
At least, that’s the way it’s worked in the past.
Why Are Some Investors Rethinking the 60/40?
The 60/40 portfolio relies on the assumption that stocks and bonds won’t move in the same direction at the same time. For most of the past four decades, that’s been the case.
But in 2021 and 2022, a surge in inflation changed the playbook. In response, interest rates rose rapidly—putting pressure on both stock and bond markets. As a result, the two core components of the 60/40 strategy moved down in tandem.
There’s also a second consideration. While a 60/40 split sounds balanced, roughly 90% of the portfolio’s volatility typically comes from the equity portion. In other words, bonds may add stability—but the portfolio’s performance still tends to follow stocks.
That means investors may be taking on more market risk than they realize, even with the “balanced” label.
Pros and Cons of the 60/40 Portfolio
Let’s explore a few of the most common reasons that investors choose the 60/40 portfolio, as well as some reasons why they want to explore other options.
| Pros | Cons |
| You get growth and stability in one simple package | You’ll probably earn less than an all-stock portfolio over time |
| It’s easy to set up and easy to stick with | You’re only invested in two asset classes. No real estate, gold, or alternatives |
| It keeps you from going all-in on stocks when markets are hot | When interest rates rise, your bonds can drag you down |
| It’s worked well for decades, which is why it’s so popular | When inflation spikes, stocks and bonds can drop at the same time – like they did in 2022 |
Benefits of a 60/40 Portfolio
- Diversification and simplicity – With exposure to two major asset classes, this strategy provides a level of diversification without becoming overly complex.
- Behavioral guardrails – The structure can help reduce emotional decision-making, especially during market swings.
- A long history of use – While not guaranteed, the 60/40 approach has historically produced moderate returns with lower volatility compared to all-stock portfolios, which is part of its lasting appeal.
Potential Drawbacks of a 60/40 Portfolio
- May limit upside – Equities have historically offered stronger returns over long periods. A blended portfolio may trail during strong bull markets.
- Lacks exposure to other assets – A traditional 60/40 portfolio doesn’t include real estate, commodities, or other alternative investments that may behave differently in varied market cycles.
- Interest rate sensitivity – Bond prices generally fall when rates rise. If rates increase while stocks are also declining, the portfolio could experience losses on both sides.
What You Might Consider Instead
For many people, the 60/40 portfolio remains a solid foundation. But depending on your situation, there may be ways to strengthen it. Here are a few ways that you can bolster your portfolio for 2026 and beyond.
1. Broaden What’s Inside the 60 and the 40
Rather than changing the structure, some investors simply broaden what’s inside each bucket.
For example:
- On the stock side, that might mean looking beyond U.S. large-cap companies to include international stocks, smaller companies, or dividend-paying stocks.
- On the bond side, you might consider Treasury Inflation-Protected Securities (TIPS), which adjust with inflation, or shorter-term bonds that are less sensitive to rate changes. The goal is to widen your exposure without adding unnecessary complexity.
This approach adds diversification without abandoning the overall strategy.
2. Consider Adding a “Third Leg” to the Stool
Some investors prefer to prioritize real assets like gold, commodities, real estate investment trusts (REITs), or infrastructure. These tend to behave differently from stocks and bonds, especially during inflationary periods when traditional bonds struggle.
For example, during a recent stock market pullback, gold gained over 12% while bonds stayed mostly flat. That’s the kind of diversification that can help when your usual safety net isn’t working as expected, although it’s never guaranteed.
3. Think About Being More Intentional With Your Allocation
Rather than setting a fixed 60/40 split and forgetting about it, some investors adjust their mix based on where they see value. This means being thoughtful about whether their current allocation still makes sense given today’s economic and tax conditions, not the conditions of 10 years ago.
For most people, this is where working with a financial advisor can make a real difference.
To Sum It Up
Should I walk away from my 60/40 portfolio?
Not necessarily. For many, it’s still a suitable strategy. But it’s smart to evaluate whether it aligns with today’s environment—and more importantly, your personal goals.
What could be an alternative?
Some investors choose to diversify more within their current allocations. Others add new asset classes altogether. There’s no one-size-fits-all solution—it depends on your time horizon, risk preferences, and what you’re trying to achieve.
How often should I rebalance?
Most advisors recommend rebalancing once or twice a year, or when your portfolio drifts significantly from your target allocation.
Wondering If the 60/40 Still Fits Your Life and Goals?
Declaring the 60/40 portfolio “dead” may be a bit of an overstatement. However, because this allocation has been questionable in recent years, 2026 is an ideal time to reexamine it.
At SD Capital, we don’t believe in planning by panic or reacting to every market headline. We believe in intentional, values-driven decisions that make sense for your life. That means taking time to understand what you’re trying to accomplish, what risks you’re comfortable with, and what adjustments (if any) might help you get there more confidently.
If it’s been a while since you’ve reviewed how your portfolio is structured, or if you’re wondering whether a 60/40 approach still fits where you are in life, we’re here to help you think it through.
Reach out to schedule a conversation with our team today.
The opinions expressed in this material are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is not a guarantee of future results. All indices are unmanaged and cannot be invested in directly.
Investing involves risk, including the potential loss of principal. No investment strategy can guarantee success or protect against loss in all market conditions.
This material is not intended to be a substitute for individualized financial, tax, or legal advice. Please consult your financial advisor, tax professional, or legal counsel regarding your specific situation.
Brent Shimman is the co-founder of SD Capital with over 20 years of experience helping clients align their finances with what matters most. He lives in Oregon, Ohio with his wife and five children.
