By Paul R. La Monica

Sometimes it doesn't pay to follow the conventional wisdom on investing.

The stock market's rapid recovery to near record highs from the swoon triggered by President Donald Trump's Liberation Day tariffs is great news for many people. But those who have followed the tried and true strategy of having a portfolio 60% in equities and 40% in bonds are missing out.

According to a recent analysis from Morningstar, there is only one period in the past 125 years when having a 60/40 portfolio was worse for investors than having all their money in stocks. And that is now.

Morningstar said the current bear market for 60/40 investors began in December 2021. Back then, stocks and bonds were suffering due to worries that Russia might attack Ukraine, plus the significant inflation that came about due to supply shortages following the worst of the Covid-19 pandemic.

Stocks have since shrugged off these concerns. But bond investors are still grappling with inflationary forces that remain stronger than desired.

"The bond market has not yet fully emerged from underwater. This decline was so severe that it's prevented the 60/40 portfolio from returning to its previous high -- marking the only time in the past 150 years that the 60/40 portfolio experienced more pain than the stock market," said Emelia Fredlick, a senior editor for Morningstar, in the report.

Still, Fredlick argued, a 60/40 portfolio may still make sense for many investors planning for the long haul even though "the upside potential of a 60/40 portfolio is a lot less than that of an all-equities portfolio." That is because "the depth of inevitable market downturns will be much less."

She pointed out that despite the recent underperformance of 60/40 portfolios, this mix of stocks and bonds held up better than an all-in-on- equities strategy during some of the most tumultuous times in market history. Those include the Great Depression; the inflation-driven 1970s bear market; Vietnam and Watergate; and the "Lost Decade" for stocks in the 2000s, with the bursting of the dot-com bubble, 9/11, and the 2007-2009 global financial crisis.

"We can't know how long it will take for the markets to recover from a crash -- or where the next crash will come from. So, diversification is still the best way to navigate market uncertainty -- across both the stock and bond markets -- while staying invested for the long term," Fredlick wrote.

Some argue that there are ways for investors to get bondlike exposure for a 60/40 portfolio without owning plain vanilla fixed-income securities such as Treasuries.

Vincent Deluard, director of global macro strategy at StoneX, said in a report in May that a better alternative for investors searching for income could be a mix of high-dividend tobacco stocks like Altria and Philip Morris, floating-rate debt, and bank loans. He recommended the iShares Floating Rate Bond ETF and Invesco Senior Loan ETF.

Bonds likely will snap out of their slump eventually, especially if inflation fears subside and the Fed starts cutting interest rates again. But the strategy isn't a great one for all investors. Equities remain the asset of choice for those who are more interested in building wealth than protecting it.

A 60/40 portfolio may be a good idea for someone getting closer to retirement, or who is saving for a big expense like buying a house or paying for a child's college tuition. Having a safer, less risky portfolio heavy on bonds makes a certain amount of sense. But for someone who is younger and wants to maximize their gains, owning bonds could be a drag on returns.

"It always goes back to revisiting your financial plan and laying a foundation for goals. It's important to have that plan and review and revisit it often," said Donna Walton, a wealth strategist at TD Wealth. "I don't like to advise a set it and forget it portfolio. No one particular allocation works for everybody."

Write to Paul R. La Monica at paul.lamonica@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

July 15, 2025 12:26 ET (16:26 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.