Over the past few years, the financial press has repeatedly declared the death of the 60/40 portfolio. After both stocks and bonds fell sharply in 2022, the classic balanced portfolio was widely portrayed as obsolete—another relic of a bygone era of falling interest rates.
For decades, the logic behind the 60/40 framework was straightforward. Equities provided long-term growth, while bonds offered income and diversification during periods of market stress. When stocks fell, bonds often rallied, helping stabilize portfolio returns.
But in 2022, that relationship broke down. The Federal Reserve’s aggressive response to inflation crushed the multi-decade bull run for bonds, creating one of the fastest interest rate increases in modern history. Bond prices fell sharply just as equity markets declined, leaving balanced portfolios exposed to simultaneous losses in both sleeves.
For many observers, the conclusion seemed obvious: the 60/40 portfolio had stopped working.
The Problem Wasn’t the 60/40 Portfolio—It Was the 1% Bond Yield
Entering 2022, the Bloomberg US Aggregate Bond Index yielded barely more than 1%. When yields start that low, bonds have almost no cushion against rising interest rates. Even modest increases in yields can produce meaningful price declines.
This dynamic has been well documented in capital markets research. Studies from Vanguard and others consistently show that starting yields explain the majority of subsequent bond returns.1 When yields are low, forward returns tend to be low. When yields are higher, both income and total return prospects improve significantly.
Today the environment looks very different.
Investment grade bonds now offer yields in the 4–5% range—levels not seen in over a decade. These higher yields dramatically improve the forward-looking profile of balanced portfolios. Income once again contributes meaningfully to returns, while the higher starting yield provides a buffer against future rate volatility.
The improvement is visible in capital market assumptions across the industry.2
Bond Yield vs. Expected 60/40 Return
| Bond Yield |
Expected Bond Return |
Expected Equity Return |
Expected 60/40 Return |
| 1% |
1-2% |
6-7% |
~4% |
| 2% |
2-3% |
6-7% |
~5% |
| 3% |
3-4% |
6-7% |
~5.5% |
| 4% |
4-5% |
6-7% |
~6.5% |
| 5% |
5-6% |
6-7% |
~7-8% |
Source: Vanguard, BlackRock, as of 02/24/2026
In other words, the very rate shock that made balanced portfolios look weakest may have simultaneously improved their long-term prospects.
Long Live the King
The modern balanced portfolio is evolving beyond the traditional 60/40 framework. Advisors today have access to asset classes and implementation tools that were once reserved for institutional investors. Commodities (Hard Assets in an Era of Persistent Friction), infrastructure (Real Estate After the Repricing: Positioned for Another Growth Cycle?) and international equities (Equities: Don't be Afraid to Diversify Internationally) can add diversification and inflation sensitivity, while tax-aware portfolio construction (Tax-Aware Rebalancing—The Missing Link Between Planning and Portfolio) can enhance after-tax outcomes.
Rather than abandoning the balanced portfolio, many advisors are expanding it—combining the traditional growth-and-defense framework with a broader toolkit of diversifiers while using tax-aware technology to enhance their ability to execute their plan, focusing on after-tax returns.
The result is a more modern version of the classic allocation.
Equities still drive long-term growth. Bonds continue to provide income and stability. But real assets, non-US equities and tax-aware implementation increasingly play supporting roles.
The king, it turns out, was never truly dethroned.
He was simply waiting for higher bond yields—and a larger kingdom.
Important Disclosures & Definitions
1 Vanguard (January 22, 2026). Capital Markets Model Forecasts. Company Information and Insights.
2 BlackRock (February 24, 2026). Capital Market Assumptions. Blackrock Investment Institute.
Diversification does not eliminate the risk of experiencing investment losses.
Bloomberg US Aggregate Bond Index: a broad-based benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, fixed-rate agency MBS, ABS and CMBS (agency and non-agency). One may not invest directly in an index.
Bull Run: an extended period within a financial market where asset prices consistently trend upward, driven by strong investor confidence and expectations of continued growth. It represents a prolonged bull market characterized by sustained positive momentum.
Investment Grade: a rating that signifies that a municipal or corporate bond presents a relatively low risk of default. To be considered an investment grade issue, the company must be rated at 'BBB' or higher by Standard and Poor's or Moody's. Anything below this 'BBB' rating is considered non-investment grade.
AAI001113 01/20/2027
