The classic 60/40 portfolio is experiencing its worst period in 150 years. What went wrong?

The idea of a "perpetual balance" between stocks and bonds has failed: the traditional 60/40 strategy has shown the worst performance since the 1870s. Investors used to rely on treasuries, which act as a protective asset in times of falling stocks and reduce portfolio volatility. However, recent years have shown that this mechanism has stopped working.

Owners of investment portfolios with a classic ratio of 60% stocks (S&P 500) to 40% government bonds (10-year treasuries) were hit harder for the first time in a century and a half than those who invested exclusively in stocks, business Insider reported, citing fresh research from Morningstar. 

"The 2020s saw the only market crash in 150 years, when a 60/40 portfolio decline was more painful than a portfolio made up entirely of stocks," says the Morningstar study. It covers the period since the start of the stock market's bearish trend in January 2022.

At the time, the S&P 500 was declining amid fears of recession, but treasuries didn't save the situation either - an aggressive interest rate hike by the Fed brought down the debt market. Since then, the U.S. stock market has recovered and is once again setting record after record, but U.S. government bonds have not broken out of their bearish trend, Business Insider notes.

KKR, one of the world's largest private equity funds, warned back in early 2025 that U.S. government bonds no longer work as shock absorbers. Morningstar confirms: the current period is the only time since 1870 that bonds haven't protected investors during a stock plunge.

Keep in mind, though: bond losses turn from paper to real only when sold early, Morningstar emphasizes. If you hold debt securities to maturity, the investor gets face value and a yield - albeit a fixed one.

Despite the failure of the traditional model, Morningstar still considers diversification a key strategy when building an investment portfolio. Study author Emily Fredlick noted, "Overall, a 60/40 portfolio experienced 45% less drawdown during the stock market crashes of the past 150 years than a portfolio composed solely of stocks."

For example, during the U.S. stock market crash of 1929 that started the Great Depression, the S&P 500 crashed 79%, while the 60/40 portfolio crashed only 53%. Even when U.S. bonds fell for decades - as they did in the mid-20th century - a balanced 60/40 portfolio still recovered and updated records, remembered Fredlick. So diversification is still the best way to weather uncertainty and preserve capital over the long term, she concluded.

The head of investment giant Blackrock, Larry Fink, in a letter to investors, published at the end of March 2025, called the traditional 60/40 strategy outdated and called for a rethink. Fink predicted that in the future the classic portfolio will transform into a 50/30/20 model: 50% equities, 30% bonds and 20% private assets such as real estate, stakes in infrastructure projects and private lending instruments.

This article was AI-translated and verified by a human editor