The "golden ratio" of investing is back, even if it's for different reasons than when it was developed. The 60% stocks, 40% bonds portfolio has been declared dead more times than I can count. The reason was always the same — and it started with the 60%.
For the better part of 15 years, the equity side of the portfolio came down to one trade: own the S&P 500 SPX and try not to get too clever about the rest. Here's who could pay higher Social Security taxes under proposals to shore up the program My friend's mother died. Can she stop Medicaid from taking the family home?
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Anything added on top of that looked like a drag on returns. International stocks lagged. Emerging markets disappointed.
Bonds, during most of that stretch, delivered returns similar to a bank deposit. Every diversified portfolio looked like a mistake next to the index. But thanks to a few makeovers, the 60/40 is back — and better than ever.
The S&P 500 was built to represent a broad basket of the market. That's no longer true: A limited number of companies now drive most of its returns as they fuel the buildout of artificial intelligence, and an even smaller handful "chip" in the rest — pun intended. Meanwhile, the number of publicly listed U.S. companies has fallen by roughly half since the mid-1990s, from close to 8,000 to under 5,000 today.
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