Episode 020:
Is the 60/40 Portfolio Dead?


Episode 020 Summary:

Welcome to this very special follow-up to Episode 19 – which was all about an edge-of-your-seat subject: Bonds. This time out The Retirement Equals Freedom Podcast is building on that theme by taking an unvarnished look at the 60/40 portfolio.

For decades, explains FSR Wealth Strategies Founder and Host Josh Bretl, it’s provided retirees a reliable mix of 60% equities and 40% bonds to protect against market downturns. Not so much anymore.

Due to shifting interest rates and other factors, that gold standard formula is no longer a given. The landscape has changed and there’s a new normal, which Josh is here to explain (with input from Co-Host Dave Schmidt that most likely be helpful to your financial decision-making).

You’ll learn why the 60/40 formula has worked in the past and based on what kinds of research the common wisdom has been updated to reflect new risks associated with bond holdings.

Understanding the purpose of bonds in your mix of investments is critical to considering alternatives (ideally with the help of a qualified advisor). Even though there’s no predicting the future for certain, there are ways to protect your retirement nest egg. It starts with education and sound advice!

This episode was fueled by Cometeer Coffee, both iced and hot!

Visit our main podcast page to learn more about or listen to previous episodes of The Retirement Equals Freedom Podcast. Don’t forget to sign up for the show’s new weekly email at the bottom of this page and definitely come join the conversation at our new private Facebook group, which you can find here.

Dave's spelling bee word from episode 20

Look Ma, I can spell!

Talking Points

With apologies to Alexa. About the 1990s music … Dave’s son objects, especially first thing on a weekend morning.

Aging gracefully? Josh shares the outcome of his recent “fun” (somewhat nausea-inducing) family outing to Santa's Village in East Dundee, IL.

Ready for “Get to Know Josh and Dave” segment? Dave asks: What’s the most ridiculous fact you know?

  • Josh recalls: If you’re measuring liquid, the little bubble on top is … oops. Never mind. He forgets.
  • Dave spells the longest word in the English dictionary (which we looked up to verify, so you don’t have to!): Pneumonoultramicroscopicsilicovolcanoconiosis. Take that spelling bee title holders!

What constitutes a 60/40 portfolio, which is considered the gold standard for investment allocations: It’s 60% equities and 40% fixed income.

Historically, from 1976 to 2021, the 60/40 portfolio averaged 10.9% returns – a great rate of return!

Unfortunately, 2022 has been a different story because interest rates have had their first significant rise since the early 1980s, which has triggered the “inverse relationship,” causing bonds to fall drastically. Equities haven’t performed great during this period, either, BTW.

We can expect 4.9% returns in the capital market over the next 10 years based on projections from the top money management companies (JP Morgan, Goldman Sachs, Black Rock and State Street – disregard any reference to Dave Schmidt, who is NOT a qualified money manager!).

Is this down bond market something to ride out? Probably not, given current trends that are likely to continue for the foreseeable future.

Is the 60/40 portfolio dead? Not forever … but in the near-term there are adjustments worth discussing with your financial advisor.

Dave Relates to Retirees – Yeah! His budgetary needs may be shifting at this juncture of life and his portfolio’s investment ratios must adjust accordingly (less laser tag games, fewer movies?).

Stay tuned for a future episode that will reveal the fun to be had with quantifying risk!

Quotable Quotes

"Some listeners have said the two of us sound like giggling little school girls" ~Josh

“I haven’t felt that bad, that motion sick, in a long time … It was a rough one. It took a couple of hours for my stomach to come back to normal.” ~Josh

“Forty percent of your portfolio in bonds is not as historically safe as it used to be. It’s not the same.” ~Josh

"I have a story about bonds...I bet it will gain a lot of interest." ~Dave

“2022 has been a terrible year for people with 60/40 portfolios. Awful year! … You have seen interest rates rise really for the first time since the early 1980s and the value of bonds has fallen drastically.” ~Josh

“The 60/40 portfolio isn’t dead, but right now there may be other options that you need to look at for your particular portfolio.” ~Josh

“If you think bonds are riveting, wait until we dig into how you quantify risk!” ~Josh

"I wanna go open up a Fidelity account. I don't even know what that is, but I want one." ~Dave

Episode Extras

About your Co-Hosts

A certified public accountant, Josh Bretl has spent the past two decades growing FSR Wealth Strategies into a firm that specializes in tax-focused retirement planning. Because taxes have the single biggest impact on how much you can spend in retirement, Josh is dedicated to developing individualized financial plans that extend and grow his clients’ retirement savings. Based in Elmhurst, Illinois, FSR Wealth strategically preserves and maximizes resources through tax-efficient strategies designed to fulfill retirement dreams.

Apart from producing and co-hosting The Retirement = Freedom Podcast, Josh's longtime friend Dave Schmidt is a content production and marketing adviser to local businesses and nonprofits. He’s also an advocate for t-shirts, all things 90s (especially the music), short walks and long naps. A serial “wallet forgetter,” Dave nonetheless swears that he has picked up the check on at least one or two meals with Josh over the years. Evidence pending.

Standard Disclaimer:
FSR Wealth Management is a registered investment advisor located in Elmhurst, Illinois. Information and opinions contained in this audio have been arrived at by FSR Wealth advisors. All information herein is for informational purposes and should not be construed as investment advice. It does not constitute an offer, a solicitation or recommendation to purchase any security. FSR is not providing legal, tax, accounting, or financial planning advice in this audio. These views are as of the date of this publication and are subject to change.

Be the First to Know About New Episodes!

We'll email you every Thursday afternoon with details on the new episode! We're also thinking of producing exclusive content just for our podcast email club. You definitely don't want to miss out!

"*" indicates required fields