Multi-Asset Solutions

Role of Bonds in a 60/40 Portfolio

Flat is the new up.
Key Insights

  • Investors should consider reevaluating the role of bonds in a traditional 60/40 balanced portfolio as today’s very low yields are likely to persist.
  • We look at ways to “stretch” or redesign the 60/40 balanced portfolio in order to mitigate the impact of low yields on overall portfolio risk and return.
  • Investors may need to make their equity allocation work harder through active management and consider new diversifiers such as long‑duration bonds or alternatives.

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This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.

The views contained herein are those of the authors as of December 2020 and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.

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Past performance is not a reliable indicator of future performance. All investments are subject to market risk, including the possible loss of principal. Derivatives typically involve risks different from, and possibly greater than, the risks associated with investing directly in the assets on which the derivative is based. Certain derivatives can be highly volatile, lack liquidity, be difficult to value, involve counter-party risk, may be considered speculative and are not suitable for everyone. Gold is subject to increased risks such as higher price volatility and geopolitical risks. Alternative strategies involve risks, including possible loss of principal and are not suitable for all investors. There is no assurance that a strategy’s investment objective will be achieved. These strategies may utilize derivatives, short sales and leverage which tend to increase risks. Alternative investments may be more difficult to value and monitor and may be illiquid. Diversification cannot assure a profit or protect against loss in a declining market. International investments can be riskier than U.S. investments due to the adverse effects of currency exchange rates, differences in market structure and liquidity, as well as specific country, regional, and economic developments. Fixed-income securities are subject to credit risk, liquidity risk, call risk, and interest-rate risk. As interest rates rise, bond prices generally fall. Investments in high-yield bonds involve greater risk of price volatility, illiquidity, and default than higher-rated debt securities.

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