60/40 portfolio: the classic mix of equities and bonds

Basics8 min read · updated 12 September 2026 · 6 sources

The 60/40 portfolio invests 60% in equities and 40% in bonds. For decades it has been the standard for balanced portfolios: the equities provide growth, the bonds cushion setbacks. In this article we work through return and risk, show why almost all the risk still comes from the equities, and explain how euro investors can put the mix into practice.

What the 60/40 portfolio is

The idea is simple: two broad asset classes that behave differently, held in a fixed ratio. Equities deliver the higher return over the long run but fluctuate strongly. High-quality bonds deliver less, fluctuate less and have provided stability in many crises. The fixed ratio is restored at regular intervals. Rebalancing is an integral part of the strategy.

The ratio has no firm theoretical origin. It became established in the practice of balanced funds and pension funds as a middle way: enough equities for real growth over decades, enough bonds to keep setbacks bearable and to be able to make payouts. Precisely because the rule is so simple, it now serves as the benchmark for many other strategies, including in Portfolio Lab.

For euro investors, a typical implementation looks like this: 60% in a global equity ETF (for example on a World or All-World index, see world portfolio) and 40% in medium-term euro government bonds. Foreign-currency bonds without hedging would add exchange-rate fluctuations. More on this under currency risk.

Return and risk in a worked example

The expected return of a mix is the weighted average of the individual returns. For risk, correlation comes into play: the less equities and bonds move in step, the more the volatility of the mix falls.

This is the most important and often overlooked property of the 60/40 portfolio: it is balanced by capital, not by risk. Because equities fluctuate around three times as much as bonds, they almost single-handedly determine how the portfolio behaves in a crisis. If you want to change that, you end up with approaches such as risk parity and the All Weather portfolio. How to calculate risk shares is explained in the article on risk contribution.

For advanced readers: why exactly 60%?

There is no theoretical derivation for exactly 60%; the figure is a proven convention. If you use the assumptions above and a risk-free rate of 1.5% to calculate the portfolio with the highest Sharpe ratio (the tangency portfolio of the efficient frontier), you end up with only 37.9% equities: expected return 4.21%, volatility 7.09%, Sharpe ratio 0.38. The 60/40 portfolio reaches 0.37. So it is almost equally efficient, but brings more return and more fluctuation.

This leads to an important insight from portfolio theory: if you want more return, you do not necessarily have to raise the equity share; you could also leverage the more efficient portfolio with a little borrowing. Most private investors do not take out loans for this and raise their equity allocation instead. Asness et al. (2012) use exactly this leverage aversion to explain the success of risk parity. The figures depend heavily on the assumptions: small changes in expected returns shift the optimal ratio considerably.

Rebalancing: keeping the ratio

Without intervention, the ratio drifts with prices. If equities rise for years, 60/40 gradually becomes 75/25, and the portfolio is riskier than planned. If they fall, the equity allocation drops precisely when equities are cheap.

Perold and Sharpe (1988) showed that a fixed-weight strategy has the advantage in volatile, sideways markets, but lags behind buy-and-hold in long trends. In practice, rebalancing once a year or when the allocation deviates by about 5 percentage points has proved its worth; details and variants are in the article Rebalancing.

What the research shows

That a mix fluctuates less than its parts is the core of the portfolio theory of Markowitz (1952). How much the basic allocation matters for the outcome was studied by Brinson et al. (1986) using large US pension funds: the long-term investment policy (that is, the ratio between asset classes) explains most of the variation in their returns over time; market timing and security selection play a much smaller role.

Ibbotson and Kaplan (2000) clarified this frequently misquoted finding. They found that investment policy explains about 90% of a fund's variation over time, but only about 40% of the differences between funds, and on average about 100% of the level of return. For private investors this means: the decision “how much in equities?” is the most important one of all; the choice of individual funds within an asset class is secondary.

The correlation between equities and bonds is less stable. In periods of low, stable inflation, bonds often rose during equity crises and cushioned the losses. When inflation and interest rates are rising, both can fall at the same time. That is what happened in 2022, when equities and bonds both lost significantly. The worked example above shows how strongly correlation changes the risk.

Variants: 70/30, 80/20 and 50/50

The table is based on the same assumed values as above. With each additional tenth in equities, the expected return rises by 0.45 percentage points, but the fluctuation rises disproportionately. Which mix suits you depends on your investment horizon and on how large a loss you can bear without selling. Rules of thumb for the equity allocation by age are discussed in the article Equity allocation by age.

Long series in euros

For euro investors, the 60/40 portfolio can be calculated far back using asset classes, for example with global equities and ten-year German government bonds (Bunds). Such long series show periods that are missing from the short histories of ETFs: decades with high inflation, with rising and with falling interest rates. This variety is essential so that you do not judge the mix only by the last decade, in which bonds benefited from falling interest rates and equities from a long upswing.

Criticism and limitations

Large endowments took a different path: instead of mixing only equities and bonds, Yale University's endowment, for example, spreads its assets across many asset classes up to private equity and real estate, as described by Swensen (2000). Such investments are hard to access and expensive for private investors; but the underlying principle (diversify more broadly than just 60/40) shows that the classic mix is only one of many sensible allocations.

• Concentrated risk: almost all the risk comes from the equities; the bonds act mainly as a buffer.
• Dependent on the interest rate environment: when rates are very low, bonds contribute little to the return; when rates rise, they lose market value (see duration).
• Inflation: nominal bonds offer poor protection against persistently high inflation; additions such as inflation-linked bonds, commodities or gold are therefore discussed (see gold in the portfolio).
• Not “safe”: a 60/40 portfolio can also lose a quarter or more in severe crises. The maximum drawdown in the backtest shows what happened in the past.

How Portfolio Lab calculates it

Portfolio Lab offers several 60/40 templates: global equities with euro government bonds as an ETF version, a long series from asset classes (world equities and ten-year German government bonds) and the classic US portfolio of index funds. In the Backtest you choose the rebalancing (none, monthly to annually, or with a tolerance band) and see how the weights develop, the risk contribution of each holding and the drawdowns. Volatility is annualised from monthly or daily returns; exactly how is described in the backtest methodology.

This article explains a method; it is not investment or tax advice. Worked examples are simplified and rounded. All terms in the glossary.