Written By: Dan Moylan

The 60/40 portfolio has been suggested by financial advisors for decades and recognized as a simple strategy to have the balance most investors seek.  This strategy allocates 60% of your portfolio in stocks and 40% in bonds.  In theory, the bond market should be safe and provide fixed income for the duration of the bond.  Is this still a good strategy?  Maybe not. The bond market has been more volatile over the past few years driven by inflation and interest rate change.  

Inflation and Interest Rates

When inflation is higher than interest rates, the real rate of return for the investor/lender is negative.  This is why the Fed is uber-focused on inflation and needed to act in 2022/2023 to raise rates to keep up with inflation.  So, depending on the rate you had on previous purchases of bonds, you were likely receiving a negative real rate of return as inflation continued increasing.  

Bond Strategies

Using a hold-to-maturity strategy will eliminate the concern for the price depreciation in a rising interest rate market since you will receive the principle back if you let the bond mature but you are stuck with the interest rate when rates are rising.  In the bond market when rates go up, the underlying value of the bond goes down and vice versa. A recent example of this strategy failing was Silicon Valley Bank employing the hold-to-maturity strategy on long-term Treasuries.  When interest rates were rising, they had to raise cash to pay for depositor withdrawals.  These unrealized losses on the long-term debt became realized losses and by March of 2023 had sent this bank into receivership.  

Risk vs Safety

While the 60/40 rule is an excellent way to balance the risk/safety sides of the portfolio, Carlson Financial doesn’t use a one-size-fits-all strategy. Every client has different needs, but all of our clients need some type of safety in retirement.  Safety comes in many different forms in an investment strategy that allows clients to set the percent for safety that they need for peace of mind.  Determining your threshold for risk vs safety requires a financial plan with insight into retirement income and goals .  Bonds are not necessarily the default for the least amount of risk for this safety.  

Say What?

The price of a postage stamp just went up again. The US Postal Service increased the price of a Forever Stamp to 73 cents, up from 68 cents. Ten years ago, in 2014, stamps cost 49 cents. 

This week in history

1949 – The NBA was born with the merger of the Basketball Association of America and the National Basketball League

1961 – The first Six Flags park opened in Texas. 

1973 – American Graffiti was released in theaters. 

1975 – Labor leader Jimmy Hoffa was reported missing. 

1981 – MTV went on air for the first time with the words, “Ladies and gentlemen, rock and roll.” 

What did it cost? (Comic Book)

1974 – 25 cents

2004 – $2.99

2024 – $4.94

Have any questions? That’s what we’re here for! Call us at 844-227-5766 today!