60/40 Portfolios Face Worst Returns in a Century

Investors with a 60/40 allocation saw their annual returns fall 34.4%

Investors may continue to see "pain" in markets before the "Great Low" is reached in 2023, according to Bank of America. The bank's strategists said in a note on Friday that Thursday's big reversal and bounce in equities was a "bear hug", describing it as "a good counter rally, but the ultimate bottoms are yet to be seen". They also noted that annualized returns for those following the traditional 60/40 portfolio rule are down 34.4% this year, the worst in a century. Many professionals now advocate different weights and greater diversification, rather than allocating 60% to stocks and 40% to bonds. But even the more defensive "permanent portfolio" of 25% each of cash, commodities, stocks and bonds fell 11.9%, the most since 2008, the strategists added.

Fed actions

Looking ahead, it is important to monitor the Federal Reserve's actions as a "Fed panic" could be a condition for equity markets to bottom, the bank said. The strategists advised that once market lows are reached next year, the best contrarian move for investors would be to be long a 60/40 portfolio and short the US dollar. Follow Global Economic Developments on Social Media! Click here to follow Ieconomy official Facebook account! Click here to follow Ieconomy official Instagram account! Click here to follow Ieconomy official Twitter account!