Multi Asset 60/40

Neversurrender

Do people still use the 60/40 Multi Asset, such as VLS and Royal London etc....

60% Equity 40% Bonds

I keep reading articles which would suggest they are no longer suitable for decent returns, I suppose driven by the way in which bonds are performing.

My own situation is I wouldn't need to touch any investments for around 10 years, and have cash reserves, my fear I suppose is, that in 10 years time anything in my 60/40 would have returned very little if anything, after reading articles on the future of 60/40's and all the talk of bonds recently.

InvesterJones

The usual warning about past performance not necessarily being indicative applies. But on the face of it, bonds offer something different to equities so they're diversifying, and if you can guarantee 4-5% yield then they're on par with many equity funds at the moment.

Bonds prices have performed badly this last year, for entirely reasonable but not always predictable reasons. The markets have priced that in accordingly, and so valuations of bond funds have dropped, perhaps making them attractive again? Then again 10 years is possibly just about long enough that variation in equities is accounted for, so if absolute highest return is your objective and you're sure you can leave them then most would point to equities' historical performance as being superior to bonds or mixed funds.

dunstonh

Do people still use the 60/40 Multi Asset, such as VLS and Royal London etc....

yes

I keep reading articles which would suggest they are no longer suitable for decent returns, I suppose driven by the way in which bonds are performing.

The problem with articles is that they are static. They were written at a point in time and become out of date very quickly.

Most people expected the impact of credit crunch to unwind slowly.  This would have created a slow drag on bonds over many many years.   However, that hasn't happened.  It has pretty much unwound over months.  

Bonds are pretty close to being back in play again.  Although we probably haven't hit the low point yet and some countries may still have yet to go through what the UK has.

Linton

A 60/40 Multi asset fund is still a reasonable option for an investor who does not want to get into the complications of defining their own asset allocation, especially for a 10 year time frame. If you are thinking of using all the money at that time it would be sensible to move to more cautious investments in say 5 years.

I think that much of the fall in bonds has already happened but could be wrong and in 10 years time who knows?

JohnWinder

If it’s no longer suitable for decent returns, what are they suggesting I use instead? If it means taking more risk, forget it; my risk appetite tops out at 60/40. And you?

Neversurrender

JohnWinder said:

If it’s no longer suitable for decent returns, what are they suggesting I use instead? If it means taking more risk, forget it; my risk appetite tops out at 60/40. And you?

Thanks, I've recently been looking at the VLS80, with a view to perhaps de risking it in 5 years time to a 60/40, given 10 years is probably but not definitely when I may need to draw from it

coastline

Link is US based showing the SP 500 , the 10 year Treasury and a 60/40 fund. In 100 years there's only been 5 cases where both equities and bonds were both down. 1931 , 1941 , 1969 , 2018 and 2022 so far. In some cases the 60/40 has been down overall but more green than red.
Green is around 80% and red 20%.

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Rich1976

Earlier this year we shifted our pensions into a 60/40 portfolio. HSBC Global Strategy Balanced and VLS60 respectively. Our work pensions are in the default funds and I think the equities element is broadly similar. 

We have 15 to 20 years to go before we are looking to retire and whether we are doing the right thing is anyones guess, but we completed an online attitude to risk calculator and it said we are medium risk, which is pretty much correct for us as no longer have the stomach for falls of over 25% as an example.

Neversurrender

Thanks everyone who replied

ivormonee

The concept of 60/40, or indeed any other combination, is in reference to incorporating diversification in a portfolio. For the majority of time in the past, equities and bonds were not that closely correlated. I don't have statistics to hand but genereally equities and bonds didn't always move in the same direction or, if they did, they were by different magnitudes. The idea was always that having a mix of both meant that if one went the wrong way, the other wouldn't, or not by as much, thereby smoothing out returns over time.

In the low interest environment that we've had the correlation between the two increased significantly. So when equities went one way, bonds tended to follow, and vice versa. In the high inflation environment, both have taken a knock. The relative "de-risk" of bonds has failed to hold water; their volatility has increased making them, in theory, a riskier investment.

Taking the argument a step further. If we were to strip out equities entirely and leave our portfolio comprising solely of bonds,or vice versa, what we would be doing is decoupling the diversification elements of our portfolio. We'd be gambling one way or the other which, as in any gambling, could be to our great advantage or disadvantage. That then takes us back to the question of what is best. The answer would have to be that our aim is to smooth out returns over the longer term (which means different timeframes for different people). In order to do this we should stick to our asset allocation.

So whilst, this year, bonds have so far provided poor returns relative to equities on a risk adjusted basis, taking them out would leave a portfolio more exposed to overall risk. If an investor's risk profile was around the 60/40 mark last year then it's likely to remain the same now. I wouldn't be looking to change my asset allocation because of shorter term volatility of one type of asset; that is the whole point of the mix. Some will go down more than others at certain times and there will be other times when they will do better.

I don't like to make any predictions about inflation, interest rates, the world economy or any other factors as that then leads me down the route of market timing which hopefully some of us will have come to realise is a bit of a mug's game. It's what traders do, and the majority of them lose money (but some seem to do very well but I'll leave you to speculate on why that may be). So, if we are to avoid market timing, essentially stripping out the noise, then for the average investor the jist would boil down to deciding an asset allocation strategy and sticking to it through thick and thin, letting the built-in diversification do its job over the longer term.

Neversurrender

ivormonee said:

The concept of 60/40, or indeed any other combination, is in reference to incorporating diversification in a portfolio. For the majority of time in the past, equities and bonds were not that closely correlated. I don't have statistics to hand but genereally equities and bonds didn't always move in the same direction or, if they did, they were by different magnitudes. The idea was always that having a mix of both meant that if one went the wrong way, the other wouldn't, or not by as much, thereby smoothing out returns over time.

In the low interest environment that we've had the correlation between the two increased significantly. So when equities went one way, bonds tended to follow, and vice versa. In the high inflation environment, both have taken a knock. The relative "de-risk" of bonds has failed to hold water; their volatility has increased making them, in theory, a riskier investment.

Taking the argument a step further. If we were to strip out equities entirely and leave our portfolio comprising solely of bonds,or vice versa, what we would be doing is decoupling the diversification elements of our portfolio. We'd be gambling one way or the other which, as in any gambling, could be to our great advantage or disadvantage. That then takes us back to the question of what is best. The answer would have to be that our aim is to smooth out returns over the longer term (which means different timeframes for different people). In order to do this we should stick to our asset allocation.

So whilst, this year, bonds have so far provided poor returns relative to equities on a risk adjusted basis, taking them out would leave a portfolio more exposed to overall risk. If an investor's risk profile was around the 60/40 mark last year then it's likely to remain the same now. I wouldn't be looking to change my asset allocation because of shorter term volatility of one type of asset; that is the whole point of the mix. Some will go down more than others at certain times and there will be other times when they will do better.

I don't like to make any predictions about inflation, interest rates, the world economy or any other factors as that then leads me down the route of market timing which hopefully some of us will have come to realise is a bit of a mug's game. It's what traders do, and the majority of them lose money (but some seem to do very well but I'll leave you to speculate on why that may be). So, if we are to avoid market timing, essentially stripping out the noise, then for the average investor the jist would boil down to deciding an asset allocation strategy and sticking to it through thick and thin, letting the built-in diversification do its job over the longer term.

Thanks very much for your detailed reply, it all makes great sense.

I guess what is worrying me the most is with all the talk of bond performance of late, I was worried that once the bonds in my funds drop, they will never recover, due to the way bonds work.