What To Do With The 40

Northern Trust

Research

9 Pages

Northern Trust examines the role of fixed income in portfolios, questioning what investors should do with the “40” in a traditional 60/40 framework as yields remain historically low. The paper suggests that bonds may still serve a purpose, but expectations for both income and diversification need to be reset.

Key Takeaways

Lower Income Reality: Core bond yields fell to ~1–2%, implying income generation is down over 50% versus historical norms.
Reduced Diversification Power: Bonds offset only ~30–40% of equity drawdowns today compared to ~60% in prior decades.
Portfolio Adjustments Needed: Replacing part of the 40 with alternatives can increase expected returns by ~1–2% while maintaining similar risk levels.
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