By Lori Ioannou
The 60/40 portfolio strategy -- a mix of 60% stocks and 40% bonds -- has served investors well for decades. But financial professionals say investors who plan to rebalance their portfolios by year's end might want to consider some other options to enhance returns while diversifying their holdings as a hedge against market volatility and potential losses.
Until recently, the 60/40 split between these two asset classes was a winning strategy -- when stocks underperformed, bonds often rallied, buffering portfolios from losses, and vice versa. A 60/40 portfolio returned an annualized 6.89% from Aug. 30, 2000, through Aug. 29 of this year, according to Morningstar Direct, which used the 60% Morningstar US Market Index and 40% Morningstar U.S. Core Bond Index to represent the 60/40 asset classes.
Lately, though, there have been times when stocks and bonds have moved in lockstep, undermining the strategy. It happened in April amid worries over President Trump's tariffs, and in 2022 when inflation surged and interest rates spiked.
But there are now a wider range of asset classes and financial products available to individual investors -- from private equity to private credit to real estate -- that may improve portfolio diversification and mitigate risk beyond traditional stock and bond allocations.
When re-evaluating your investment strategy, keep in mind that there is no one-size-fits-all, and that your asset allocation should reflect your personal long-term financial goals, time horizon, risk tolerance, tax situation and liquidity needs.
Here are three portfolio models to consider beyond 60/40 that investment strategists are recommending to financial advisers and their clients this year.
The 25/25/25/25 Permanent Portfolio
Dividing your portfolio equally in four asset categories -- stocks, bonds, commodities and cash -- is a well-balanced long-term diversification strategy for investors to consider, according to Michael Hartnett, chief investment strategist at BofA Global Research. That's because he and his team say they believe higher inflation and interest rates lie ahead, which will heighten market volatility and create an environment where cash and commodities can outperform stocks and bonds.
Each asset allocation serves a purpose during various economic cycles: 25% stocks for growth and long-term capital appreciation during times of economic prosperity; 25% bonds for income and stability; 25% in gold and commodities as a hedge against inflation and for currency risk protection; and 25% in cash for liquidity and safety during market downturns, periods of recession or deflation.
While this allocation strategy is intended to reduce losses and offer consistent returns, there are trade-offs. It may limit potential gains during periods of strong market performance in a single asset class like stocks. And it's important for investors to rebalance periodically to maintain the correct asset allocation, say financial advisers.
There are funds that follow a variation of this so-called permanent portfolio strategy such as the roughly $5.2 billion Permanent Portfolio;A (PRPDX). It has posted year-to-date returns through Aug. 29 of 16.7% and one-year returns of 21%. In contrast, a 60/40 portfolio had one-year returns of 11.55%, according to Morningstar Direct.
Historical performance of this portfolio model: Total annualized returns from 2000 through Aug. 29, 2025, according to Morningstar Direct: 4.45%.
This investment strategy is designed to perform well across various economic conditions including expansion, recession, inflation and deflation by balancing risk across a range of asset classes. The focus is on resilience and capital preservation as well as total returns, according to Michael Arone, chief investment strategist and managing director of State Street Investment Management.
All-Weather Portfolio
Originally designed by Bridgewater Associates, it predicts various market moves using algorithms derived from historical data to make allocations.
While the exact allocations can shift as market conditions change, such a portfolio has a typical asset allocation of 30% U.S. and global stocks; 40% long-term Treasury bonds as a stabilizer during recessions and periods of deflation; 15% intermediate-term bonds including inflation-linked bonds as middle ground between long-term bonds and higher-risk assets; 7.5% gold as a hedge against inflation and geopolitical risk; and 7.5% in other commodities.
A fund that follows a common approach to this portfolio strategy is the $330 million SPDR Bridgewater All Weather exchange-traded fund $(ALLW)$. Launched in March, the actively managed fund uses Bridgewater-designed algorithms to choose asset allocations across a range of global assets.
Historical performance of this portfolio model: Total annualized returns from 2000 through Aug. 29, 2025, according to Morningstar Direct: 6.49%.
The 30/70 Flip Portfolio
Todd Schlanger, senior investment strategist at Vanguard, is citing this inversion to the 60/40 stock and bond mix as potentially more attractive to conservative investors in the current economic environment. It includes 30% stocks and 70% in bonds.
His rationale: Higher interest rates and high stock valuations imply a narrow equity premium -- the additional return investors expect from stocks compared with risk-free government bonds. Investors can achieve a similar rate of return with less risk investing in a variety of fixed-income and stock investments.
That is why for the stock portion of his portfolio he is looking to diversify by adding value stocks as well as small-caps and international stocks in developed markets. Right now, the weakening U.S. dollar makes foreign stock investments more valuable since returns outside the U.S. are worth more when converted back into dollars. Year-to-date through Aug. 26, the MSCI World index -- a benchmark that tracks the performance of about 1,300 large and midcap companies across 23 developed markets -- is up 14% vs. 10.2% for the S&P 500.
On the fixed-income side -- U.S. investment-grade bonds, international bonds, Treasury bonds with maturities of 10 years or longer -- make up most of the allocation.
Some may think this a contrarian strategy considering that the stock market has been hitting record highs. But that could also be a signal the market is nearing a correction, some financial pros say. Vanguard's 10-year forecast for the stock and bond market published in June projects that the U.S. bond market will have annualized returns of 3.9% to 5.1% over the next decade while the U.S. stock market will have returns of between 1% and 7.7% during the same period.
The iShares Core 30/70 Conservative Allocation ETF $(AOK)$ is composed of an index of equity and fixed-income funds that represent this allocation strategy. The $630 million fund had one-year total returns of 7.4% and year-to-date returns through Aug. 29 of 7.88%.
Historical performance of this portfolio model: Total annualized returns from 2000 through Aug. 29, 2025, according to Morningstar Direct: 5.55%.
Lori Ioannou is a writer in New York. She can be reached at reports@wsj.com.
(END) Dow Jones Newswires
September 06, 2025 09:00 ET (13:00 GMT)
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