Home Business News Interested in steady gains with minimal risk exposure? The 60–40 portfolio might make sense

Interested in steady gains with minimal risk exposure? The 60–40 portfolio might make sense

by Thea Coates Finance Reporter
3rd Apr 24 10:37 am

Portfolio diversification is the key to wealth creation without navigating the stressful market cycles.

While performance-oriented stocks can be useful, Trading.biz analyst Rahul Nambiampurath believes it is the right time to reconsider the 60-40 funds.

“Yes, the U.S.-specific 60-40 portfolio managed negative returns — to the tune of 16% in 2022, but the extended outlook remains positive,” mentions Rahul.

Several key factors contribute to this optimistic long-term vision, including historical reliance. Rahul highlights the fact that U.S.-based 60-40 portfolios have given annualized returns of 8.8% from 1926 to 2021.

The 60-40 portfolio is a risk-hedging investment strategy, with 60% of the capital allocated to stocks and 40% allocated to bonds. It is known for its low-volatility approach compared to any all-stock portfolio.

Rahul has highlighted a handful of 60-40 funds that investors can consider going forward:

  • Vanguard Balanced Index Fund (VBAIX)
  • BlackRock 60/40 Target Allocation Fund (BIGPX)
  • Fidelity Asset Manager 60% (FSANX)
  • M1 Finance 60/40 Portfolio: Custom Portfolio

Despite a tepid 2022, most funds have charted decent year-to-date returns. VBAIX is up 5.32%, whereas BIGPX and FSANX are up 6.12% and 5.52%, respectively.

BIGPX performance table: BlackRock

BlackRock’s global presence, followed by strategic diversification, makes it one of the dark horses in the 60-40 portfolio space. Rahul also highlights the past performance of BIGPX to validate the fund solidarity. BIGPX is already up 15.68% year-on-year, despite the near-disastrous 2022, whereas the 10-year slab of 6.45% as the annualized return is rivalled only by a few.

Shares Core S&P ETF (IVV) daily chart: TradingView

The chart here shows the steady performance of iShares Core S&P ETF, one of the critical constituents of the BlackRock 60/40 Target Allocation Fund. This ETF tracks large-cap U.S. equities and contributes significantly to the 60-40 portfolio. The bearish divergence specific to the ETF is clear, indicating an upcoming correction. However, the same is hedged by other key players, including the iShares Core Total USD Bond Market ETF (IUSB), BlackRock Sustainable Advantage Large Cap Core Fund Class K (BIRKX), and the iShares MSCI EAFE Value ETF (EFV).

Here is what Jason Kephart, Director of Multi-Asset Ratings at Morningstar, has to say about the 60-40 portfolio going into 2024.

“The 60/40 portfolios gained about a little over 10% through the end of November, which is a pretty good return. It is still below its high-water mark that it hit at the end of 2021. But given what’s going on with interest rates, the future looks much better for it.”

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