Three Reasons Why the 60/40 Allocation can be a Good Starting Point – Presented by Mark K. Lund, Financial Advisor in Utah

Financial Advisor UtahMany people have the misconception that the primary goal of investing is to make as much money as you can as fast as you can.

Unfortunately, you can’t just order up outsized returns like a delivery pizza. You have to pay for your chance at them with concentrated risk. The bigger the potential payout, the greater the chance that you won’t get it.

On the other hand are the people who want to shield their hard-earned savings from any kind of price fluctuation risk at all.

Unfortunately, the places where your money is guaranteed to be safe, such as savings accounts and certificates of deposit (CDs), come with their own kind of risk—the risk of shrinking value caused by returns that don’t keep up with inflation.

The financially educated investor, however, understands that the goal of long-term investing is to achieve returns that have a reasonable expectation to beat inflation and multiply by compounding, while at the same time working to minimize the risk of substantial loss. Implementing this type of strategy must be done with discipline and patience.

For more than 50 years, the rule of thumb for pursuing this idea has been a portfolio consisting of 60% stocks (shares of companies) and 40% bonds (debt), or the 60/40 portfolio, for short.

This allocation is not a magic formula for beating inflation every quarter or shielding you from all loss. For example, in 2022 when inflation was at 8%1, the S&P 500 index lost more than 18%2, and a hypothetical 60/40 portfolio would have lost about 16%3. But over the long-term, this allocation has been able to consistently deliver “normal” returns.

Of course, in a year where this strategy was down about 16%, you didn’t have to look very far to find articles declaring it “dead.”

According to Roger Aliaga-Diaz, chief economist and head of portfolio construction at Vanguard, there are three reasons why the 60/40 is still a good rule of thumb.

First, it seeks to benefit from the generally divergent behavior of stocks and bonds. Over the long-term, when stocks go down, bonds tend to go up and vice versa.

Second, academics and industry analysts have gained a clearer understanding of the systematic stock and bond risk premiums. And as a result, having a balanced portfolio makes more sense than ever.

Third, the 60/40 held for the long-term tends to be cost-efficient. Though technology is now making additional customization also cost-effective.

Just as a size 8 dress or a suit off the rack won’t have the same fit as a garment that’s been tailored, the 60/40 allocation makes a good starting point for investors saving for retirement. There is a lot that can be customized within this hypothetical strategy to better fit an investor’s risk tolerance, timeline, and retirement goals.

As always, your trusted financial advisor will be happy to explain the rationale behind the allocation chosen for your unique situation.

If you ever have any questions about your investments or retirement plans, please feel free to give me a call at 801-545-0696.

Mark Lund
Stonecreek Wealth Advisors, Inc.
11576 S State Street, Bldg. 1002
Draper, UT 84020


This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This material was prepared by Efficient Advisors, LLC (“EA’) for Mark Lund, Mark is a Financial Advisor in Utah. He is known as a Wealth Advisor, The 401k Advisor, Investor Coach, Financial Planner, Investment Advisor and author of The Effective Investor. Mark offers investment advisory services through Stonecreek Wealth Advisors, Inc. a fiduciary, independent, fee-only, Registered Investment Advisor firm providing investment management and retirement planning for individuals and 401k consulting for small businesses. Mark’s newsletter is called The Effective Investor Newsletter. Cities served in Utah are: Salt Lake City, Salt Lake County, Utah County, Park City, Murray City, West Jordan City, Sandy City, Draper City, South Jordan City, Provo City, Orem City, Lehi City, Highland City, Alpine City, American Fork City. The views expressed herein are exclusively those of Efficient Advisors, LLC (‘EA’), and are not meant as investment advice and are subject to change. All charts and graphs are presented for informational and analytical purposes only. No chart or graph is intended to be used as a guide to investing. EA portfolios may contain specific securities that have been mentioned herein. EA makes no claim as to the suitability of these securities. Past performance is not a guarantee of future performance. Information contained herein is derived from sources we believe to be reliable, however, we do not represent that this information is complete or accurate and it should not be relied upon as such. All opinions expressed herein are subject to change without notice. This information is prepared for general information only. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. You should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. You should note that security values may fluctuate and that each security’s price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Investing in any security involves certain systematic risks including, but not limited to, market risk, interest-rate risk, inflation risk, and event risk. These risks are in addition to any unsystematic risks associated with particular investment styles or strategies.