Every time bonds—or “fixed income”—have a poor year, headlines start to declare that the classic 60/40 portfolio is dead. What they’re really referring to is the 40% typically allocated to fixed income in a traditionally diversified portfolio, especially for those in the later stages of their careers.
Let me be clear: this post is for educational purposes only and should not be considered personalized investment advice. Determining the right portfolio allocation is a highly individual process. Your financial plan should be developed in consultation with a qualified financial professional who understands your unique goals, risk tolerance, and time horizon.
That said, this topic ties closely to a previous post I wrote on assessing how much risk one should take in a portfolio. Your ability and willingness to take risk are essential when deciding how much to allocate to asset classes—like fixed income—that typically have lower correlations to equities. Our approach to portfolio construction is built around that very principle.
Generally, investors with a longer time horizon can afford to take on more equity exposure. Those closer to retirement, however, often need greater stability and may lean more heavily on fixed income to reduce volatility.
Still, market behavior isn’t always predictable. For example, during the 2022 bear market, equities and bonds showed a higher-than-normal correlation. That dynamic becomes more common when inflation is the central concern driving markets. Inflation often leads the Federal Reserve to raise interest rates, which impacts shorter-duration. But long-duration fixed income may also be affected—both by rising rates and by its sensitivity to inflation itself.
Even though fixed income doesn’t always provide a perfect buffer, it has historically played an important role during recessionary environments. As with most things in life, it’s about tradeoffs. A higher allocation to bonds typically means lower expected returns over the long term—but potentially greater stability in times of market stress.
Ultimately, the right balance is highly personal. The key is to have an allocation that aligns with your goals, risk tolerance, and overall financial picture.
If you’re unsure about your current portfolio allocation, we’d be happy to have a conversation and help you explore what might be best for you.
— HPK Provident Advisors
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Economic forecasts set forth may not develop as predicted
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.