Investors maintaining the traditional 60-40 mix of stocks and bonds can turn to total bond exposure and the Vanguard Total Bond Market Index Fund ETF Shares (BND ).
BND can provide the necessary aggregate bond mix without the need to hold several debt issues at once. Investors get diversification with the ease of one ETF that does it all in a 60-40 portfolio, which might be tagged as outdated, but not completely gone.
A 60-40 portfolio can still thrive in the current market, given the right conditions.
“The 60/40 stock and bond portfolio is not dead, so advisors should not try to kill it or bulk up on higher yielding, riskier fixed income assets, according to Vanguard investment consultant Matthew Sheridan,” a ThinkAdvisor article said. “At a recent webinar hosted by Dave Nadig, chief investment officer and director of research at ETF Trends, Sheridan, who works with financial advisors, compared a 60/40 stock and bond portfolio to the typical advisor portfolio of 60% stocks, 30% bonds and 10% cash to lower the duration, or interest rate sensitivity, of the portfolio as rates rise.”
BND seeks the performance of Bloomberg Barclays U.S. Aggregate Float Adjusted Index. The Bloomberg Barclays U.S. Aggregate Float Adjusted Index represents a wide spectrum of public, investment-grade, taxable, fixed income securities in the United States, including government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities, all with maturities of more than 1 year.
Resiliency During a Downturn
According to the ThinkAdvisor article, Sheridan “also looked back at the performance of stocks and bonds during the double-digit stock market downturns that occurred in the fourth quarter of 2018 and the first quarter of 2020. In both downturns, U.S. and non-U.S. investment-grade bonds appreciated, while U.S. and non-U.S. stocks and U.S. high-yield bonds lost value.”
The height of the pandemic last year saw a sustained flight to bonds, causing yields to plummet. Those who piled in on investment grade debt were rewarded when major stock indexes fell sharply.
“We do not believe the 60/40 portfolio is dead at this point," Sheridan noted. "There are periods when equities fall 4%, 5%, 7% and bonds might move off, but when equities drop 20% or 30%, that’s when … having allocation to investment-grade credit or government bond credit will play a solid role in portfolio construction moving forward.”
For more news, information, and strategy, visit the Fixed Income Channel.