The 60/40 Portfolio: A Reality Check
60% equities, 40% bonds — for decades this mix was the gold standard of asset allocation: equities deliver returns, bonds cushion drawdowns, and the negative correlation between the two smooths the overall result. 2022 broke that promise: equities and bonds fell by double digits at the same time, and the 60/40 portfolio had one of its worst years on record.
Does that mean the classic is dead? Not necessarily — but its underlying assumptions deserve a sober look.
2022: When diversification failed
The protective role of bonds rests on one condition: crises in which central banks can cut rates. That worked in the dot-com bust and in 2008 — bonds rallied while equities fell. 2022 was the opposite: an inflation shock forced central banks into rapid hikes, and long-dated euro government bonds lost roughly as much as equities in percentage terms.
The lesson is not “bonds are useless” but more precise: in inflation shocks, equities and bonds correlate positively. Against growth shocks (recession), the bond sleeve remains a sensible buffer. If you run 60/40, you should know which risk the 40% protects against — and which it does not.
Concentration risks, ETF overlap and look-through analysis – free with MoneyPeak.
Today’s rate environment and the alternatives
There is one key difference versus 2021: back then, bonds started from yields near zero — barely any carry, but full duration risk. Today, investment-grade bonds offer a positive expected return again, which structurally improves the starting point for 60/40. If you want a more flexible defensive sleeve, part of it can sit in a money market ETF: minimal price risk, the current money market rate, and always available as a rebalancing reserve.
The most common alternatives at a glance:
| Variant | Equities | Defensive sleeve | Character |
|---|---|---|---|
| Classic 60/40 | 60% | 40% bonds (intermediate/long) | Balanced, vulnerable to inflation shocks |
| All Weather | around 30% | Long + short bonds, gold, commodities | Robust across regimes, lower expected return |
| 80/20 with money market | 80% | 20% money market/short duration | Higher return, deeper drawdowns, no duration risk |
Implementation with ETFs — and the tax angle
Two products are enough: a global equity ETF (MSCI World or ACWI) and a euro aggregate bond ETF or an EUR-hedged global variant, so the “safe” sleeve carries no currency risk. What matters is maintaining the ratio: without rebalancing, a 60/40 portfolio quickly drifts towards 70/30 in strong equity years and carries more risk than planned.
For German investors, separate implementation also pays off tax-wise: the equity ETF gets the 30% partial tax exemption (Teilfreistellung), the bond ETF gets none, and a mixed fund would only receive 15%. Two separate ETFs are therefore usually more tax-efficient than an off-the-shelf multi-asset product — and you keep control over the weighting.
Frequently asked questions
Is the 60/40 portfolio dead?
No. 2022 was an inflation shock in which equities and bonds fell together — that remains the key weak spot. With bond yields positive again, the starting point is much better than in 2021.
Which bonds belong in the 40% sleeve?
Euro government bonds or a euro aggregate ETF with intermediate duration; global bonds only EUR-hedged. To avoid duration risk, blend in money market ETFs or short maturities.
How often should I rebalance?
Once a year, or whenever the allocation drifts more than 5 percentage points from target. Doing it more often adds little and triggers unnecessary taxes and costs.
Concentration risks, ETF overlap and look-through analysis – free with MoneyPeak.