Stock Market Insights: Investing has changed. Has your portfolio?

For decades, the 60/40 investment portfolio — 60% stocks and 40% bonds — was considered a reliable long-term growth and stability formula. Financial advisors, pension funds and individual investors leaned on it as a time-tested standard.

But in today’s economic environment, many question whether the traditional 60/40 mix still holds up. Here’s why this once-iconic strategy might no longer be good enough.

Bond yields are falling short

The 40% allocated to bonds was historically used to generate steady income and provide a buffer during stock market downturns. But that safety net has worn thin. Years of historically low interest rates followed by rapid rate hikes have created unusual volatility in the bond market. As rates rise, bond prices fall, and with inflation running high, the real return on bonds has often been negative. The income cushion investors once relied on is now far less dependable.

Stock market volatility is rising

Equities always have carried risk, but today’s market is more complex and reactive than ever. Global economic shocks, political instability and rapid technological shifts can cause violent swings in stock prices. More concerning, the traditional negative correlation between stocks and bonds has weakened. In 2022, for example, both asset classes declined simultaneously, leaving even balanced portfolios exposed to steep losses.

Inflation is reshaping investor needs

Inflation isn’t just a short-term concern always it’s a structural challenge that can erode purchasing power and investment returns. While bonds typically offer fixed interest payments, those payments lose value in an inflationary environment. The result? Portfolios that once felt conservative and well-balanced might now be at greater risk of underperforming.

Retirement durations are growing longer

As life expectancies rise, so does the need for investment portfolios to support longer retirements. The 60/40 model, while once sufficient, often lacks the growth engine needed to sustain withdrawals over 25 or 30 years. Today’s retirees might need a more nuanced approach that factors in inflation protection, tax efficiency and flexible income strategies.

What’s the alternative?

While the 60/40 model might still serve as a starting point, investors should consider expanding beyond it. Strategies might include:

Diversified alternatives: Real estate, private credit or infrastructure investments.

Dividend-oriented equities: Providing both income and growth potential.

Inflation hedges: Such as Treasury Inflation-Protected Securities, commodities or even certain energy assets.

Tactical adjustments: Actively shifting allocations in response to market trends.

This doesn’t mean abandoning the principles of diversification — it means adapting them to today’s realities.

The 60/40 portfolio isn’t necessarily obsolete, but it’s no longer the one-size-fits-all solution it once was. In an age of greater uncertainty, longer retirements and diminished bond performance, investors should revisit their strategies and consider more flexible, forward-thinking approaches. If your investment plan hasn’t evolved with the times, now might be the right moment to reevaluate your investment allocations.

Have a blessed week.

Fervent Wealth Management is a financial management and services entity in Springfield, Mo. Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.

Opinions are for general information only and not intended as specific advice or recommendations. All performance cited is historical and is no guarantee of future results. All indices are unmanaged and can’t be invested in directly.

The economic forecast outlined in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

Visit www.ferventwm.com for more information.