The 60/40 portfolio may be making a comeback despite being declared dead by many strategists over the last couple of years, according to Judi Leahy, senior wealth advisor at Citi Global Wealth.
“A year ago people were saying 60/40 (a portfolio of 60% equities and 40% bonds) was dead because of the low interest rate environment, but it may be trying to resurrect itself because bonds are doing better,” Leahy said in an interview. The 60/40 strategy may be one of the strategies that can now be used by retirees who have lost money during the recent selloff of stocks, she said.
This year’s market selloff has erased nearly $3 trillion from U.S. retirement accounts, significantly impacting investors with large portions of their portfolios tied up in stocks, according to Boston College’s Center for Retirement Research.
“Investors, especially retirees, need to find ways to mitigate their risk when markets become as volatile as they are now,” she said. To do that, she said, investors should consider a three-bucket approach to bond investments.
Treasurys can satisfy the short-term bond bucket, then fixed-income dividend payers and investment grade corporate bonds, and municipal bonds for the third bucket if the investors wants to provide more protection, Leahy said.
For equities, Leahy said, “Growth stocks and inflation do not go well together, so investors should move to value stocks. That is where some returns can be found.” Energy, finance and utilities still hold some opportunities, she added, and, in a declining environment, large cap remains more opportunistic than small cap.
Leahy stressed the need for advisors to continue to talk to clients to reassure them that they are well positioned to weather any volatility. “Staying the course is always best, even as economic times are uncertain,” she said.
Retirees should be wary of withdrawing too much money from their accounts during the market downturn, which can jeopardize the ability of the portfolio to cover the retiree’s life span, she said.