A Second Opinion on the 60/40 Default: Just What the Doctor Ordered

GMO

Ben Inker

Research

10 Pages

GMO argues the classic 60/40 portfolio works over very long periods but can disappoint badly when starting valuations are stretched. Since 1900 it returned about 4.7% real, yet it also went through six weak stretches averaging 11 years, which frames today’s case for a more valuation sensitive approach.

Key Takeaways

Long Run Not Smooth: Since 1900, a 60/40 portfolio returned about 4.7% real, but it also had 6 weak periods that averaged 11 years.
Defense Mattered In Crisis: From October 2007 to February 2009, Benchmark Free fell 19.3% versus a 35.7% drop for a 60/40 portfolio.
Opportunity Set Looks Unusual: GMO says today offers its best relative asset allocation opportunity in 35 years, while a traditional 60/40 may deliver only low single digit real returns.
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