The 60-40 Portfolio Makes a Comeback

After a disastrous 2022, the "60-40" portfolio of stocks and bonds is up 28% so far this year, the best return since 1995

Young businessman using laptop for analyzing data stock market

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Key Takeaways

  • After a disastrous 2022, the "60/40" portfolio of stocks and bonds is up 28% so far this year, its best performance since 1995.
  • Last year marked the worst for the 60/40 portfolio since the Great Depression.
  • In a note to clients, Bank of America strategists advised investors sell stocks once the S&P 500 reaches 4,200, and cautioned against the Federal Reserve prematurely pausing interest rate hikes.

The traditional "60/40" investment strategy is making a comeback.

That’s according to strategists at Bank of America, who wrote in a note to clients that after a disastrous 2022, the portfolio of 60% stocks and 40% bonds has had a 28% jump so far this year, the best since 1995.

Still, they are advising that investors sell equities once the S&P 500 reaches 4,200.

BofA said that if the Federal Reserve "mistakenly" pauses raising interest rates because policymakers think inflation is easing, bond yields will reflect that by moving above 4%, and if that happens, "we most certainly ain’t seen [the] last Fed rate hike of this cycle." The strategists noted that "inflation shocks cause rate shocks, rate shocks cause bear markets, and bear markets cause recessions."

Annual Returns for 60/40 Portfolio

Bank of America Global Research

AI Bubble

They also warned that artificial intelligence (AI) is a "baby bubble," arguing that all bubbles start with easy money and end with rate increases. They added that the "new AI mania" will be inflationary.

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