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Market Review 2023: A year that many speculated would be lackluster for US stocks saw the S&P 500 post gains of 26.3% on a total-return basis.

Perspective on Premiums: Many investors review results by calendar year and consider 10-year periods when evaluating long-term returns.

Money Matters: Spotting and Stopping Financial Scams: In today’s fast-paced digital world, investors are more vulnerable than ever…

Why the Wisdom of the Market Beats AI: Can investors use AI to determine the fair price of a stock or a bond?

Where There’s a Will, There’s a Way: A current estate plan is a vital component of comprehensive financial planning…

Great Insurance Hike: Balancing Protection & Price in Today’s Market: Appropriate insurance coverage is one of the building blocks of a comprehensive financial plan, but …

When Headlines Worry You, Bank on Investment Principles: Rather than rummaging through your portfolio looking for trouble when headlines have you worrying…

SECURE Act 2.0: On December 29, 2022, President Biden signed the Consolidated Appropriations Act of 2023 …

This Has Been a Test: Think back to December 2019. The economy was humming. Unemployment, interest rates, and inflation were at …

A Balanced View of the 60/40 Portfolio: Focus not solely on where returns have been but also on where they could be going….

A Reset for Crypto and FAANG Stocks: If the market decline of 2022 taught investors anything, it’s that what goes up might also come down….

A Balanced View of the 60/40 Portfolio

Dec 1, 2022

The 60/40 portfolio had a hard time offering much support.

With both fixed income and equities declining on the year, the traditional 60% stock/40% bond portfolio had a hard time offering much support in either asset category, leading some to question the utility of this approach. Although 2022 was the worst year in history for many bond indices, the performance of the 60/40[13] portfolio didn’t crack the top five peak-to-trough drawdowns in close to a century’s worth of data. The drawdown that reached 19% at its nadir was painful, but it’s only two-thirds of the 30% peak-to-trough drawdown investors[14] endured through a particularly difficult period from 2007–2009.

And the portfolio saw some recovery late in the year, ending down 14% for 2022.

During rocky markets, it is especially important for investors to focus not solely on where returns have been but also on where they could be going. Looking at the performance of a 60/40 portfolio following a decline of 10% or more since 1926, returns on average have been strong in the subsequent one-, three-, and five-year periods (see Exhibit below).

Exhibit A Case for Optimism In USD. Drawdowns include all periods where the 60/40 portfolio declined by 10% or more from the prior peak. Peaks are defined as months where the 60/40 portfolio’s cumulative return exceeds all prior monthly observations. Returns are calculated for the one-, three-, and five-year look-ahead periods beginning the month after the 10% decline threshold is exceeded. The bar chart shows the average cumulative returns for the one-, three-, and five-year periods post-decline. There are 10, nine, and nine observations for the one-, three-, and five-year look-ahead periods, respectively. Source: Morningstar Direct as of December 31, 2022. Five-year US Treasury notes data provided by Morningstar. S&P data ©

2023 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio

13. The 60/40 portfolio consists of the S&P 500 Index (60%) and five-year US Treasury notes (40%). Five-year US Treasury notes data provided by Morningstar. S&P data © 2023 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. 14. Peak-to-trough drawdowns include all periods where the 60/40 portfolio declined by 10% or more from the prior peak. Peaks are defined as months where the 60/40 portfolio’s cumulative return exceeds all prior monthly observations. Troughs are defined as the months where the 60/40 portfolio’s cumulative return losses from the prior peak are the largest.

Disclaimer

Rockwood Wealth Management, LLC (RWM), a Pennsylvania limited liability company, is a fee‐only wealth advisory firm specializing in personal financial planning and investment management. Rockwood Wealth Management, LLC, is a US Securities and Exchange Commission (SEC) Registered Investment Advisor. A copy of RWM’s Form ADV‐Part II is provided to all clients and prospective clients and is available for review by contacting the firm. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results.