The 60/40 Portfolio, Explained

The 60/40 portfolio is a commonly used benchmark for a balanced investment strategy. But it has recently come under fire as being "broken." Here's what you should know about this portfolio type.

While you may have seen the term “60/40 portfolio,” do you actually know what it is?

In 1952, “Modern Portfolio Theory” was introduced by economist Harry Markowitz as a way to optimize risk-adjusted returns with diversification. The theory moved portfolio construction towards a holistic analysis of how an asset fits into a portfolio and investor‘s overall goal. One way to diversify a portfolio and reduce risk is to invest in a combination of stocks and bonds.

Then, along came Jack Bogle. The Vanguard founder popularized index funds and diversifying portfolios with 60% in stocks and 40% in bonds. Overtime, 60/40 became a benchmark for what a balanced portfolio looks like.

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