Investors in a global portfolio made up of 60% shares and 40% bonds1 enjoyed returns of nearly 30% from the end of 2022 to September 20242.
This is quite a turnaround since this so-called 60/40 portfolio (also known as a balanced portfolio) fell by about 16% in 20223, causing many investors to question if this classic strategy was still effective. Some even declared that the 60/40 approach was dead.
Even including the tough year of 2022, the 10-year annualised return4 of the 60/40 portfolio was 6.9% over the past decade, which is 0.1 percentage points above its long-term average.
The outlook for 60/40 portfolios has improved and we expect bonds to contribute more to returns than they have done in the recent past. While shares were the main driver for the portfolio over the last decade, we expect both shares and bonds to contribute more evenly over the next 10 years.
A strong long-term track record
The 60/40 portfolio has a consistently strong long-term track record. While the strategy has had its ups and downs – with one-year returns ranging from +37% to –30% during the 2007-2010 financial crisis as shown by the light green line in the chart below – the 10-year returns (as shown by the darker green line) have been much more stable.
Returns of the 60/40 portfolio over time
Source: Vanguard calculations, based on data from Standard & Poor’s, MSCI, and Bloomberg. Returns calculated in US dollars. Data from 30 April 1997 to 30 September 2024.
Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.
Staying diversified is what makes the 60/40 portfolio consistent over the long term. By design, this strategy spreads investments across different types of assets and regions, which helps to smooth out yearly performance.
For example, the Vanguard LifeStrategy 60% Equity Fund, which we can use as proxy for the 60/40 portfolio due to its 60% allocation to shares and 40% allocation to bonds, usually performs around the middle of the pack compared to other areas of the market, as shown in the chart below. The red bars represent the performance of the Vanguard LifeStrategy 60% Equity fund over the years since 2014.
Even despite tough years like 2022, when the Vanguard LifeStrategy 60% Equity Fund was down by 11.2%, it has performed about average over the ten-year period compared to other parts of the market, such as global shares (dark teal bars), global bonds (dark grey bars) or even cash (lime green bars).
Key shares, bond and cash index returns,alongside the LifeStrategy 60% Equity Fund
Past performance is not a reliable indicator of future results.
Source: Vanguard calculations, data from 1 January 2014 to 31 December 2023, using data from Bloomberg, Thomson Reuters Datastream and FactSet. Global shares represented by the FTSE All-World Index, North American shares by the FTSE World North America Index, Emerging market shares by the FTSE All-World Emerging Index, Developed Asia shares by the FTSE All World Developed Asia Pacific Index, European shares by the FTSE All World Europe ex-UK Index, UK shares by the FTSE All-Share Index, UK government bonds by the Bloomberg Sterling Gilt Index, UK index-linked government bonds by the Bloomberg UK Govt Inflation-Linked UK Index, UK investment-grade bonds by the Bloomberg Sterling Aggregate Non-Gilts – Corporate Index, Global bonds (hedged) by the Bloomberg Global Aggregate Index (hedged in GBP) and cash returns represented by the Sterling Overnight Index Average (SONIA). Performance shown is cumulative and denominated in GBP. It includes the reinvestment of all dividends and any capital gains distributions. The performance data does not take account of the commissions and costs incurred in the issue and redemption of shares. Basis of fund performance NAV to NAV.
It’s easy to get caught up in short-term ups and downs. That’s why we encourage investors to focus on Vanguard’s four principles for investing success: have clear and appropriate investment goals; invest in a balanced portfolio of shares and bonds; minimise costs; and maintain perspective and long-term discipline.
1 Bonds are a type of loan issued by governments or companies, which typically pay a fixed amount of interest and return the capital at the end of the term.
2 Vanguard calculations, based on data from Standard & Poor’s, MSCI, and Bloomberg, for the period from 30 December 2022 to 30 September 2024. Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.
3 Vanguard calculations, based on data from Standard & Poor's, MSCI, and Bloomberg, for the period from 1 January 2022 until 31 December 2022. Past performance is not a guarantee of future results. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.
4 A 10-year annualised return is the average yearly performance over a 10-year period. It smooths out the fluctuations in returns from year to year.
Investment risk information
The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.
Past performance is not a reliable indicator of future results.
Some funds invest in emerging markets which can be more volatile than more established markets. As a result the value of your investment may rise or fall.
Investments in smaller companies may be more volatile than investments in well-established blue chip companies.
The Vanguard LifeStrategy® Funds may invest in Exchange Traded Fund (ETF) shares.
ETF shares can be bought or sold only through a broker. Investing in ETFs entails stockbroker commission and a bid-offer spread which should be considered fully before investing.
Funds investing in fixed interest securities carry the risk of default on repayment and erosion of the capital value of your investment and the level of income may fluctuate. Movements in interest rates are likely to affect the capital value of fixed interest securities. Corporate bonds may provide higher yields but as such may carry greater credit risk increasing the risk of default on repayment and erosion of the capital value of your investment.
The level of income may fluctuate and movements in interest rates are likely to affect the capital value of bonds.
The Funds may use derivatives in order to reduce risk or cost and/or generate extra income or growth. The use of derivatives could increase or reduce exposure to underlying assets and result in greater fluctuations of the Fund's net asset value. A derivative is a financial contract whose value is based on the value of a financial asset (such as a share, bond, or currency) or a market index.
For further information on risks please see the “Risk Factors” section of the prospectus on our website.
Important information
Vanguard only gives information on products and services and does not give investment advice based on individual circumstances. If you have any questions related to your investment decision or the suitability or appropriateness for you of the product[s] described, please contact your financial adviser.
For further information on the fund's investment policies and risks, please refer to the prospectus of the UCITS and to the KIID before making any final investment decisions. The KIID for this fund is available, alongside the prospectus via Vanguard’s website.
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