By Steve Dinnen
Now that interest rates have perked up, it might be time to reconsider the 60-40 split on stocks versus bonds.
Bonds, you may recall, have hovered near zero for seemingly forever. That made it pretty tough to justify following the advice for prudent investors to allocate 60% of their money to equities and 40% to bonds. Sticking with bonds pretty much assigned you to a zero-sum game.
But then interest rates rose, along with inflation. Today, AAA-rated corporate bonds are yielding as much as 4.95%. BBB ratings are 5.74%. Barron’s even floated the notion of getting into junk bonds, some of which yielded more than 8%.
On government debt, the current yield on a one-year Treasury note that sold Jan. 25 is 4.57%. A five-year bond that sold Jan. 31 is at 4.055%. Series I bonds sold between Nov. 23 and April 24 carry a yield of 5.27%.
“In our view, 60-40 is back,” J.P. Morgan asset manager Dan Holtkamp said last month to the Financial Planners Association of Iowa.
He noted that between 1950 and 2023, a portfolio of stocks returned 11.2%, while bonds returned 5.5%. A 60-40 split returned 9.3%
