The Classic 60-40 Investment Strategy Falls Apart. 'There's No Place to Hide.'

For decades, Americans planning for retirement have been advised to invest in a mixture of stocks and bonds. The idea was simple. When stocks did well, their portfolios did, too. And when stocks had a bad year, bonds usually did better, which helped offset those losses. It was one of the most basic, dependable ways of investing, used by millions of Americans. This year it stopped working.

Despite a powerful rally last week after cooler-than-expected inflation data, the S&P 500 is down in 2022 about 15%, including dividends, while bonds are in their first bear market in decades. A portfolio with 60% of its money invested in U.S. stocks and 40% invested in the 10-year U.S. Treasury note has lost 15% this year. That puts the 60-40 investment mix on track for its worst year since 1937, according to an analysis by investment research and asset management firm Leuthold Group. Many Americans are seeing decades’ worth of savings shrink, week by week. Belt-tightening among millions of households could serve as yet another drag on an economy already suffering from high inflation, a slowing housing market and rapidly rising interest rates.

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Bonds have helped offset the pain of the previous market crises, including the bursting of the dot-com bubble in 2000, the global financial crisis of 2008, and, most recently, the brief but punishing bear market brought about by the Covid-19 pandemic in 2020. This year, U.S. Treasurys are having what could wind up being their worst year going back to 1801, according to Leuthold, as central banks have swiftly raised interest rates in a bid to quell inflation. The iShares Core U.S. Aggregate Bond exchange-traded fund, which tracks investment-grade bonds, has lost 14% on a total return basis. The declines weigh especially on baby boomers, who have hit retirement age in worse financial shape than the generation before them and have fewer earning years ahead to recover investment losses.

Roughly 51% of retirees are living on less than half of their preretirement annual income, according to Goldman Sachs Asset Management, which this summer conducted a survey of retired Americans between the ages of 50 and 75. Nearly half of respondents retired early because of reasons outside their control, including poor health, losing their jobs and needing to take care of family members. Only 7% of survey respondents said they left the workforce because they had managed to save up enough money for retirement. Most Americans said they would prefer to rely on guaranteed sources of income, like Social Security, to fund their retirement—not returns from volatile markets. But only 55% of retirees are able to do so, the firm found.

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Many financial advisers caution against abandoning the stock-and-bond approach after just one year of unusually bad returns. They point to charts tracking the S&P 500’s upward climb over the decades and note that throughout history, investors who bought at the end of the worst selloffs have been richly rewarded. Someone who entered the U.S. stock market during the depths of the financial crisis in 2009 would have received a return of roughly 361% over the following 11 years—enjoying stocks’ longest-ever stretch of gains.

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https://www.wsj.com/articles/investment-retirement-stocks-bonds-market-11668015638 (subscription)