For decades, the 60/40 portfolio—a mix of 60% stocks and 40% bonds—was hailed as the gold standard of investing. It promised growth with a cushion: Stocks delivered long-term gains, while bonds offered protection during downturns and a steady stream of income.
But in today’s economic reality, that formula isn’t working like it used to.
Let’s look at why… and share some alternatives to the classic 60/40 setup.
What worked then doesn’t work now
The 60/40 model was born in a world of falling interest rates and tame inflation. Starting in the early 1980s, the Fed slashed interest rates from over 15% to near-zero by the early 2000s.
As rates fell, bond prices surged—and delivered double-digit total returns for decades. From 1980 to 2020, U.S. Treasury bonds returned over 6% per year on average.
That tailwind made bonds a powerful diversifier. They weren’t just safe—they were profitable. And because inflation was largely under control (averaging around 2.5% from 1990 to 2020), investors weren’t losing much purchasing power by sitting in bonds.
But the last few years have flipped that script.
When interest rates were slashed to zero in 2020, bond yields collapsed. Investors who bought bonds during this period earned less than 2% per year on 10-year Treasuries… not even enough to keep up with inflation.
Then, the Fed’s aggressive rate hikes in 2022–2023 to combat inflation crushed bond prices. The result: 2022 was the worst year for bonds in U.S. history, with the Bloomberg U.S. Aggregate Bond Index falling over 13%. For the first time in decades, both stocks and bonds fell sharply at the same time… blowing up the whole “diversification” premise of the 60/40 model.
The new macro reality: Sticky inflation and higher rates for longer
Fast forward to today, and the macro landscape is still a mess for traditional portfolios.
Inflation isn’t going away. Core PCE—the Fed’s preferred inflation metric—is on the rise, climbing from 2.6% in April to 2.8% in June. Consumer Price Index (CPI) readings are ticking higher, too.
The situation has left the Fed in a bind. While markets have been hoping for rate cuts, Fed Chair Jerome Powell has made it clear we should not expect one anytime soon.
This is especially bad news for bonds. If rates stay higher for longer, bond prices will remain under pressure. And if inflation stays elevated, real returns on fixed income will continue to erode.
Meanwhile, government debt is ballooning. U.S. deficits are running at $1–2 trillion annually, and Treasury buybacks are increasing. That’s led to talk of a “stealth QE” (quantitative easing), where the government quietly injects liquidity by buying bonds—another distortion in the market.
So what does that mean for the traditional 60/40 investor?
It means the environment is fundamentally different from the one that made the model successful. And following the same playbook could be a costly mistake.
Smarter alternatives to the 60/40
Some of the smartest investors are already rethinking the 60/40 framework.
For instance, Darius Dale, founder of financial research firm 42 Macro, now uses a diversified mix of stocks, gold, and Bitcoin. The thesis is that real assets offer better protection than bonds in an inflationary world.
Meanwhile, Porter Stansberry, long-time financial publisher, has floated the idea of replacing the 40% bond allocation with property & casualty insurance stocks like WR Berkley (WRB).
Why? Because they essentially function like leveraged bond funds—collecting premiums and investing them in fixed-income assets.
And in today’s higher-rate world, that’s a winning formula. For example, Chubb (CB)—one of Daniel’s favorite P&C insurers—is now earning billions in investment income thanks to the higher interest rate environment.
These stocks may not be sexy, but they’re built for this environment. They benefit from higher rates, provide long-term stability, and offer better potential upside than traditional government or corporate bonds.
The bottom line: Don’t mindlessly follow the 60/40
To be clear, bonds still have a place in many portfolios. They provide income and downside protection, especially for retirees or risk-averse investors.
But mindlessly sticking to the old 60/40 model without accounting for today’s macro conditions is a mistake.
The investing landscape has changed. Inflation is sticky. Rates are elevated. And the traditional diversifiers aren’t working the way they used to.
If you want to keep growing your wealth—and protect it along the way—you need to evolve your strategy to fit the current conditions.
Fortunately, Frank and Daniel can help.
Each Thursday on Wall Street Unplugged Premium, the guys dig into what’s really driving the markets… and how to position your portfolio for profits. Start your membership today to catch this week’s episode.
