Investing in the US: what is the classic 60/40 strategy and why it is not recommended at the moment

At Takecareofmoney we explain what the 60/40 investment strategy consists of and why it is not currently recommended due to the situation of the financial and bond markets in the US.

In the world of investments in the United States, few strategies exist that are as common and used as the 60/40 rule, which consists of your investment portfolio being made up of 60% stocks from the Stock Exchange. and the other 40% is bonds.

The reasoning behind this composition is simple : your portfolio can benefit from rising prices of highly volatile assets, such as stocks, while at the same time enjoying the protection offered by much safer, lower-yielding financial instruments, such as bonds.

In other words, the 60/40 investment strategy is intended for investors who are willing to accept moderate risk and earn moderate returns as well.

However, right now, the 60/40 investment strategy is at its worst in years. Why? At Takecareofmoney we explain it to you.

Why is it not advisable to use the classic 60/40 strategy right now in the US?

The key to answering this question is the current monetary policy of the United States Federal Reserve (Fed) to control the high levels of inflation in the country.

On the one hand, the Fed’s highest rate hike in 40 years to try to tamp down inflation has scared investors, who have noted the possibility of the US economy slipping into a recession.

It is precisely this concern that has caused the main stock indices to enter a downward trend or “bear market” , and despite the slight upturns that the Stock Market has had in recent months, there are not a few institutions that believe that the market financial has not yet bottomed out.

Therefore, any investment portfolio that has followed the 60/40 strategy is already damaged for the most part.

But the Fed’s policy has affected not only the financial market, but also the US bond market, which is at its worst since 1926.

We already explained it before in another article : when interest rates rise, bond prices tend to fall.

Thus, the Fed’s monetary policy has caused bond prices in today’s market to plummet.

According to investment firm Callan, this could be the first year that both stocks and bonds report negative returns since 1969.

However, various analysts consider that changing the financial strategy could also be detrimental, since they are made to be followed for relatively long periods of time (up to 10 years), regardless of the temporary fluctuations of the market.

In this sense, requesting the advice of a financial strategist is the most convenient.