The Death of the 60/40 Portfolio: What Comes Next for Serious Investors?

With 60% equities and 40% bonds, the traditional 60/40 portfolio has been a go-to strategy for decades for investors wishing to balance the potential for growth from stocks with the stability and income that bonds (especially government bonds) could provide. Ever since the mid-20th century, the 60/40 has been hailed as the appropriate approach when constructing a portfolio designed to deliver moderate returns without being more than moderately risky.

The concept of the 60/40 portfolio grew out of the modern portfolio theory (MPT) developed by Harry Markowitz in the early 1950s. The MPT´s emphasis on diversification and the balance between risk and return laid the groundwork for the 60/40 asset allocation strategy, and in the 1970s and 1980s the 60/40 model became a mainstream investment shortcut for both individual and institutional investors.

While the economic environment has changed a lot in recent years, many investors still cling firmly to the 60/40 model, reluctant to even entertain the idea that it might not be a model that will serve them well moving forward. In this article, we will discus why it would behoove today´s investors to at least take a look at the model´s core assumptions and decide for themselves if they still see the 60/40 as the optimal choice in 2025.

Understanding the Underlying Assumptions

The 60/40 model depends on one key relationship: stocks and bonds usually move in opposite directions. When equities drop, bonds are supposed to cushion the blow. That relationship broke down hard in 2022, when both sides of the portfolio sank. It wasn’t just a bad year; it was a flashing red warning that diversification doesn’t mean protection if everything’s falling together.

As Tobias Robinson, expert at Investing.co.uk put it:

“The 60/40 model wasn’t built for an environment where both sides of the portfolio can lose at the same time. It’s not dead, but it no longer provides the protection investors assume. Risk needs to be redefined, not just rebalanced.”

The Rise and Fall of the Bond Safety Net

For decades, bonds were the grown-up in the room. They offered income, stability, and, most importantly, negatively correlated returns. When equity markets panicked, bond prices rose. That worked in an environment of falling interest rates and predictable central bank policy. It worked when inflation was quiet and growth was steady.

Now, not so much. Inflation hasn’t gone away. Interest rates have gone higher for longer than most investors expected. Central banks aren’t sticking to the same predictable playbook they used for the first 20 years of the 21st century.As a consequence, bonds no longer feel safe. In some cases, they feel just as risky as equities, but without the upside.

This has caught many traditional investors off guard. They weren’t just hurt by falling stocks. They were hurt by the false comfort of a portfolio design that assumed the bond side would save them. Instead, both sides broke at the same time.

Is Duration Risk Is the Real Blind Spot?

One reason bonds “failed” in 2022–2024 was because portfolios were overloaded with long-duration government debt, which was disproportionately sensitive to interest rate hikes. The overlooked issue wasn’t just bonds: it was duration. Investors reaching for yield had extended into long-dated government and corporate bonds. When rates spiked, those positions got crushed. Duration risk was once seen as a manageable academic input, but it has grown to become a true portfolio killer. Many portfolios that looked conservative on paper turned out to actually be more rate-sensitive than growth equity funds. For wealth managers using passive bond ETFs, the pain was even more acute, since duration was baked in and not actively managed.

Rebalancing Is Not Enough

The standard advice when the 60/40 slips is to rebalance. Buy more of the underperformer, sell some of the winner, and wait. But that assumes both assets still function the way they’re supposed to. If they don't, rebalancing just compounds the problem. This is why risk has to be redefined. It's no longer about volatility alone. Investors are now watching liquidity, cross-asset contagion, macroeconomic inflection points, and regime shifts.

It has become clear, that in 2025, diversification needs be a lot more creative than before. That means new strategies: private credit, infrastructure, real assets, macro hedge funds, commodities, etcetera. It also means thinking about time horizons differently. Some investors are adding short-duration strategies or using more cash as a strategic allocation, not just a holding place. Others are getting tactical by modifying exposure dynamically based on market signals rather than fixed rules.

How Pensions and Endowments Are Quietly Ditching the 60/40

The shift away from 60/40 isn’t just a retail panic, even though some analysts prefer to paint that picture. In reality, institutional investors such as pensions, endowments, and sovereign wealth funds have been pulling back quietly for years. Many have reduced their exposure to public equity, core bonds and other classic fixed-income products, while increasing allocations to investments such as private credit, infrastructure, and absolute return strategies. Yale’s endowment actually moved away from 60/40 decades ago. Today, even more traditional funds are following suit, because risk parity models that once looked conservative are now starting to feel fragile in real-world drawdowns. The rethink is happening at the highest levels, and the retail segment is being sluggish to catch on – not the other way around.

Many retail investors still assume that diversification means holding more funds across more tickers, but diversification only really works if those assets behave differently under stress. Holding a tech ETF, a growth ETF, and the S&P 500 isn’t diversification, it’s concentration with extra steps. In 2022 and again in 2024, cross-asset correlation spiked during selloffs. This simple type of diversification failed the investors, not because the general principle of diversification is wrong, but because investors ignored real risk overlap when they put together their portfolios. Real diversification requires different asset classes, strategies, and return drivers, not just more positions.

The Myth of Passive Protection

For years, passive investing made 60/40 look smarter than it was, because as long as both sides of the portfolio climbed over time, nobody really questioned the method. We were getting good results, so why rock the boat?

But the success of the 60/40 passive strategy was built on a very specific set of market conditions: low inflation, low volatility, and loose monetary policy. As those conditions are no longer with us, relying on this old model doesn’t look like prudence anymore. It actually looks more like inertia or even nostalgia, and investors who built careers on index tracking are now scrambling to explain why their “diversified” clients got hit on all sides.

This isn’t about market timing. It’s about admitting that relying on the past to predict the future has limits, especially when the economic structure itself is shifting.

Is the 60/40 Really Dead?

Some argue the model still has life. That this is just a rough patch, and that the core principles of this type of diversification and allocation still hold. While that might be true if we employ a long enough time frame, an employee who is planning to retire in the next 15 years do not need theoretical models that may, or may not, prove to be true on a 100-year or 200-year scale.

The question isn’t whether the 60/40 will ever work again or if it will hold true from a century perspective. It’s whether it works now and in the near future. And for many portfolios that need to deliver stability, income, and flexibility, the answer is no. The 60/40 is outdated, because themarkets have moved and the risks have changed. Serious investors are adjusting to protect themselves from models that no longer fit the reality they’re living in.

The Psychological Lag of the 60/40 Crowd

Many investors still stick with 60/40 not because it works, but because it's familiar. They stay because of inertia or fear of complexity. The 60/40 still feels safe. It appears balanced to someone who has been trained to trust it. But markets don’t reward comfort, they reward clarity, and clinging to a broken model won’t protect capital. The next decade won’t be won by those who diversify in name only, it’ll be won by those who has the capacity to adapt to real-world conditions.

What Comes Next?

There’s no single answer and none of us can predict the future with certainty. Right now, portfolio construction has become less about fixed allocations and more about responsive frameworks. That could mean blending public and private assets, using more active risk controls, or abandoning rigid models altogether. This isn’t just a tactical shift. It’s a mindset change. The next generation of investors won’t ask, “What’s the standard allocation?” They’ll ask, “What problem am I solving for?” And that shift, from rules to reasoning, is most likely (but not certainly) what will define serious investing in the years ahead.

One hard truth investors are rediscovering is that returns outside the 60/40 model often come with lower liquidity. Private equity, private debt, infrastructure, etcetera, may offer attractive risk-adjusted returns, but they typically won't let you exit quickly and suddenly just because you want out. That matters a lot for portfolio construction, and both liquidity risk and cashflow planning need to be considered.

The move beyond 60/40 isn’t just about finding higher yield or better diversification, it’s about accepting a different risk profile altogether. Not worse. Just different. And often, slower. If you are shifting into private markets or alternative strategies, you’re trading off liquidity. The proper response to the death of the 60/40 model is certainly not to blindly rush into to arms of the wealth managers who loudly proclaims that “alts is the answer to all your woos” and forget about the downsides that comes with these choices.

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