60/40 portfolio a good starting point

Investors can look at a portfolio consisting of a 60 per cent weighting to equities and a 40 per cent weighting to bonds as a good starting point.

A global funds management house has confirmed an investment portfolio consisting of a 60 per cent allocation to equities and a 40 per cent allocation to fixed income is on the whole a good strategic starting point for investors.

In its “2023 Long-Term Capital Market Assumptions” report, JP Morgan Asset Management determined this portfolio mix delivered the best market returns over the past 12 years.

“Because we’re starting from much deeper valuations than we’ve had for quite a long time, and we’ve had a reset in bond yields, we do see the 60/40 portfolio having a pretty decent return … so we’re looking in US dollar terms something close to 7.2 per cent,” JP Morgan multi-asset solutions portfolio manager Leon Goldfeld noted.

“We used to say, and this was sort of the mantra in the market, prior to the GFC (global financial crisis) the 60/40 portfolio would give you [a return] of 8 per cent.

“And then as equity markets went up and bond yields came down after the GFC, and stayed down, the mantra was 60/40, around 2010 and up to 2016, was giving you 6 per cent. Then as equity valuations kept drifting higher, from about 2018, that [dropped to] 4 per cent.

“And so our forecast went [from] 8 per cent before the GFC [to] 6 [per cent] and [then] 4 [per cent], and I think last year was a little north of 4 [per cent].”

Given this history, Goldfeld described a resulting return from this portfolio structure of 7.2 per cent as a big jump.

“So in terms of investors who need a reasonable total return target, just from beta investment and all this assumes just market returns, this is a pretty good starting point strategically,” he suggested.

He pointed out this conclusion was a highlight of the analysis.


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