Standard investment advice for those planning for retirement has been to invest 60% in stocks and 40% in bonds, but that strategy may no longer be working.
Key Details
- In theory, the mixed investment of stocks and bonds would offset one another when either stocks or bonds had a poor year—minimizing losses.
- This year, however, that strategy has not proved to be as successful.
- The S&P 500 is down around 15% and bonds are experiencing the first bear market in decades.
- So far this year, portfolios with a 60-40 split have lost around 15%—the worst results for this strategy since 1937.
Why it’s news
As inflation continues to rise and economic conditions grow harsher, Americans close to or already in retirement are now watching their savings shrink.
In years past, when the stock market was in crisis, bonds were able to alleviate some of the losses investors were seeing. But this year, U.S. Treasuries are experiencing what could be their worst year since 1801.
The dire economic conditions predominantly affect older Americans. Their generation is one of the most poorly financially equipped generations to reach retirement.
For some, the losses are so significant that the retirees have no choice but to wait and see if their investments will recover. Some may even need to return to the workforce in order to supplement their income—a much more difficult task at an older age.
Around half of retirees are living on about half of their pre-retirement yearly income, The Wall Street Journal reports. Many of those between the ages of 50 and 75 retired before they were ready—not because they had enough funds, but because of health, layoffs, or family obligations.
While Social Security benefits provide a more stable form of income, only around half of retirees are able to live on these funds alone.
There aren’t many clues to indicate when the 60-40 split may start working again—especially as concerns about a potential recession grow more urgent—though abandoning a tried and true method after one year of bad results may be too hasty.
