Capitalist Investor

Is the 60/40 Portfolio Making a Comeback? | Bonds, Rate Cuts & Retirement Planning, Ep. 333

• Strategic Wealth Partners

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The 60/40 portfolio (60% stocks, 40% bonds) has been called everything from the cornerstone of retirement planning to a relic of the past. With the Fed signaling multiple rate cuts, could bonds finally regain their place in balanced portfolios?

In this episode of The Capitalist Investor, Tony Zabiegala and Derek Gabrielsen discuss the history of the 60/40 model, why bonds collapsed in 2022, and whether alternatives like private credit, real estate, and annuities deserve a spot in your retirement plan. They also share practical strategies for creating a custom portfolio that aligns with your income needs and risk tolerance.

on this episode of The Capitalist Investor, For decades, the 6040 portfolio, 60% in stocks and 40% in bonds was the retirement recipe for your investments. But then it died, and then it came back to life, and then it died again. Is it going to be coming back to life when the fed cuts rates here in the near future? Hey Tony. What's going on man? How you doing? What's up man? How you doing? You know, back from vacation. All right. Is that that new shirt? It is. Yeah. Did you golf there? I did. You dirty. Dog. I the ocean, I missed you. It was. You were there. In the Bahamas. Yeah. It's one of the greatest places ever. Honestly. Dude, the one hole like the hole left side of the hole is the ocean, and it's like a big sand trap. Yeah. So, anyway, good for you. Yeah. He should have bought me a shirt. Thanks. All right, today we're going to be talking about the the, you know, the old golden standard of having a balanced portfolio, walking into or preparing for retirement or in retirement. The old 60, 40. Right. 60%. The stocks, 40% the bonds. However, the bonds were so good in like the 90s, early 2000, things like that when we were cutting rates. Right. And we're cutting rates. And when interest rates go down, your bond asset goes up. Right. Yep. Okay. Started, January in 2001. You're looking for that. And then and then and then we had zero interest rates forever. And bonds were flat. You call them dead or flat, but, I mean, they weren't yielding much and they weren't growing. And now that we then spiked interest rates right after you know like once inflation went through the roof and we, we had to tame inflation with increasing rates. And that's what the fed did. Right. Bonds cratered. And what was it in 2003. Was the I believe it was there's less than a handful like there's one, 2 or 3 times where stocks and bonds were down in the same year. We got to experience that little treat in 2003. Or 2023. Sorry. And I mean, there was nowhere to hide. Yep. 22 was it 22. Yeah. Okay. Sorry. That was the rough year. That was the bad year. Yeah. Okay. And now we could argue where it's like, hey, like I don't want any bonds. So they're not doing anything. I'd rather just have growth stocks. And you know people are they're hearing everyone all their friends making money on like oh my God. I'm like, the market's still on. It has. Don't get me wrong. But is our our bonds going to become a darling again because the fed is looking to cut rates. There's immense pressure by President Trump on the fed chair to do that. And are we are we staring at a you know a nice bull run in in bonds where the 6040 portfolio could actually be a nice one two punch again. Yeah for sure. You know I remember coming out of the 2008 recession. You know, it was kind of, the global financial crisis. It was kind of, the perfect storm. You know, the the market was collapsing. But also people were moving all of their money to bonds because, you know, back then there wasn't really that that was just kind of, the move people were making. Not not really any advancement overs just out of equities into bonds. And I remember, you know, it was double line. It was throwing off like, you know, eight, 10% return per year, just like crazy numbers. You could just throw your, your money into, you know, a good, bond fund and have a huge headwind for that 60, 40 portfolio. You know, I think, I think 2022, really did change a lot of people's minds because, you know, the the, the 40%, the, the, the supposedly safe part didn't really do anything, in fact, that actually hurt their performance. You know, in a big down year for the S&P, I think it was almost down 20%, I want to say like 18% in 2022. Yeah. So, you know, that's why we've done so many shows on, you know, alternatives to to the 6040. But. Yeah, like the like like we talked about private credit, alternative income. Right. Like, get catching a bond that isn't really in a bond market. It's it's like what the, what businesses are paying to private small private equity funds that are loaning them money. Right. Right. Which are high asset backed like they could be rather secure. Right. So and then you also have like real assets, could take that spot to like, you know, real estate, you know, real estate's illiquid, but it does usually generate rent, which is of income. Right. So if you're investing in real estate collecting that, that. Yeah, the monthly check or quarterly check depending on what kind of investment you're in is is is the equivalent of a bond or it can be. And so the one thing is, is that like and this is 6040 is that's a, that's a, that's how much risk do you want to take. Because some I've talked to some people like Tony I want no bonds. And I'm like let's that's fine. Right. But I still feel so I've had these conversations with like Mark with, with some clients and they're like, Tony, I want nothing to do with bonds. Like, I know they're just not going to make us any money. Maybe that maybe that'll turn over. Maybe that mentality will turn over if we start cutting interest rates. And that's a, you know, a, a tailwind for, for bonds to go up. But right now, let's think about it. So another way to combat this is like being exposed to all equities can be detrimental because you know the old saying you you know buy low sell high or whatever. What happens when when stocks go down and you still need income. Right. Right. You don't want to sell low right. Because to generate the retirement income you need. So if you want to be aggressive like a 6040 portfolio is, is is a moderate, maybe moderate or aggressive portfolio depending on your mentality. But the book says it's moderate, right? Aggressive is more like 8020 or maybe even 100 zero. Right? Right. It's in that range of like but think about this another way to do this. If you're more of an aggressive investor, whether you're pre-retirement or even post retirement, but you're still drawing income. Think of it this way. Here's another outlier idea where you, the average bear market in stocks is somewhere between 2 to 3 years. And that means stocks are down 20% and or more. And to get back to even, it takes about 2 to 3 years typically to do that. Now this year was a little different. In 2025 and entered bear bear market territory. We're back in three months. That's not normal. But we're not in normal times, but in normal times, 2 to 3 years. So let's just let's just call it three years. So let's go kind of more on the higher end of that spectrum. And I have I need 80 grand in retirement to live my lifestyle. You know we can adjust this number to whatever it is. But like I'm going to use an example I need 80 grand and I have $1 million portfolio. Well of that 80 grand forty's coming from Social Security hypothetically. So I need to pull 40 grand out of my investments every single year. But hey Tony I'm all in. I'm all in equities. What, what what if the market does go down. What do we do? I think that's a good problem. Right. Well you know what I mean. It's not I mean it's a problem where we need to we need to come up with a solution. So even though you might want to be, you know, 100 miles an hour, 100, 100% stocks, 0%, maybe you need to just take three years times 40. That's 120 grand that you need to put on the sidelines in bonds. Or even some of these money markets are paying three and a half to 4% that, you know, we use Schwab and Fidelity, but those could be going down again if the fed starts cutting rates, if they're yielding 4% today, maybe in six months they're yielding three. Yep. So we all I'm saying here is that there's 6040 is just the old standard from years and years ago. It's the go to model for retirement planning. If you want to be aggressive, I think you still need to put at least 4 or 3 years of money into something that you can dip into. If markets were to go down. Yep. For sure. And, you know, I've, I've used strategies with clients where, you know, we, we stay aggressive. On their investment side, they're, you know, IRAs and, brokerage accounts. But we use annuities to basically fill the gap, on the income. Yeah. So you have guaranteed income on one side, you figure out kind of what you need, and you can put the right amount in there. So you have a guaranteed income stream. You know, I've been doing that recently, kind of with half, like, growth annuities and half income annuities for a little diversification. Yeah. But you can you can still be conservative. Quote unquote, on the income side and aggressive on the investment side. Right. Is is all just kind of figuring out your equation. And, and that I think is probably going to be one of our main points here is that it is dependent on your situation, but it's also dependent on how much risk you want to take. You know, we always say, you know, time in the market, not timing the market. You know, making big changes throughout the year, you know, is something that you don't want to be doing even if you're right. Right. Because even if you're right once, you still have to be right again on the timing. So, you know, getting comfortable with the volatility in your portfolio, you know, is really a major part, to retirement and, retirement success. Yep, I completely agree. And yes, alternative like another alternative are are the income annuities. You know, I say like, they work like Social Security. We could tie in Social Security. Maybe you have a pension. Guaranteed income flows. Yeah, right. Where we don't have to necessarily worry about what is happening on the other side of the equation in the equity market, because maybe 70 to 80% of our income needs are taken care of, security and another guaranteed income stream. So and then the fact that you mix in like the growth annuity, you can usually pull 10% out of those great time to pull 10% out is when the market's tanking. Yeah. Right. So so yeah the key takeaways is, you know, I it hasn't hit us quite yet because they, the fed has not started cutting rates quite yet. But I do feel that, you know bonds are going to be looked at at a different, you know, a different view that they have. They haven't been in a quite a long time and that that it is part of the portfolio. Again because we're, we're, they're going to be cutting rates. And that is that is a tailwind typically for the bond market. Yeah. Yeah. So, you know, to answer your question from before, I, I do think, you know, I am kind of you know, I wouldn't say bullish. You know, it is the bond market after all. But, rates have to start going down. I believe the market's priced in three rate cuts before the end of this year. Yeah. It's like at least two. Yeah it's three now I wouldn't want to discard it. But like I wonder if the first one will be 50. I wonder if it'd be 50 basis points or a quarter. Yeah. We'll see. But yeah, I mean like there's, there's some, there's some economic, things happening like unemployment's kind of going back up. Inflation is, you know, ticking up. But, you know, like inflation has been flat for so long and we're coming off of 9%. Not that not that many years ago. And like, yeah, there's going to be some, some inflation but not like I don't believe it's going to be like it was back when it was you know skyrocketing into the six seven 9% rates. Right. So nobody likes spending more money. But typically when there's inflation, you know, like the, the, the stock market keeps up with that and has, it has historically. So yeah. so one last take on this is that, you know, you don't want to, you know, bury the idea of a 6040. I also don't think you want to bury the idea of being 100% in, in all equities. I think you still need some fixed income kind of component in case the bear market comes through, but just don't follow, like what we're saying here blindly. Like, oh, they said 6040. Let's do it. Like you should have your retirement plan built out. You should have a custom plan based on your income needs, your retirement assets, how all this stuff plays to you, what your retirement goals are, have the custom plan built, and that is how you determine the appropriate amount of risk that you need so that you can take care of your income needs in retirement. All right. Well excellent topic this week on the, the 6040 portfolios. And if you guys have ideas for shows or anything you want us to talk about on the show, hit us up at info at P connect. Com, and we'll talk to you next week. The opinions expressed in the podcast. Are for general informational purposes only, and are not intended to provide specific advice or recommendations for any investment, legal, financial or tax strategy. It is only intended to provide education about the financial industry. Please consult a qualified professional about your individual needs.