MW This stock and bond strategy is so disliked - and it's probably your best investment move for the next 10 years
By Mark Hulbert
Why a 60/40 portfolio is likely to beat the S&P 500 through 2035 at least
In the past, when the market was overvalued as it is now, a 60/40 portfolio almost always beat the S&P 500 over the subsequent decade.
Balanced investment portfolios are out of favor, but don't count them out. The odds are good that a conservative 60% stock/40% bond portfolio will outperform the S&P 500 SPX over the next decade.
Making more money with less risk is a winning combination, and yet the 60/40 portfolio is being discounted. With the U.S. stock market on a seemingly endless march to successive all-time highs, a conservative and balanced approach such as the 60/40 portfolio seems antiquated.
That's a dangerous belief, given the stock market's currently extreme overvaluation. In the past when the market was overvalued as it is now, a 60/40 portfolio almost always beat the S&P 500 over the subsequent decade.
This conclusion doesn't depend on which valuation measure you use, since they all tell a similar story. But to illustrate the 60/40 portfolio's likely advantage in coming years, the accompanying chart focuses on the Cyclically-Adjusted Price Earnings $(CAPE)$ ratio, which was made famous in the 1990s by Yale professor Robert Shiller. Higher CAPE values represent richer valuations, and as you can see from the chart, the extent to which the 60/40 portfolio beats the S&P 500 rises and falls with the CAPE ratio.
It's because of this correlation that the odds favor the 60/40 portfolio in coming years. The CAPE currently stands at 39.9, which is at the 99th percentile of the distribution of historical values back to 1881. If the future is like the past, the 60/40 portfolio will almost certainly beat the S&P 500 between now and 2035.
And not by just a little bit. According to a simple econometric model constructed from the historical correlation between the CAPE and the 60/40 portfolio's above-stock-market return, the portfolio will beat the S&P 500 over the next decade by 2.1 annualized percentage points.
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Another way of appreciating the odds that favor the 60/40 portfolio is to calculate how often it beat the S&P 500 whenever the stock market in the past got even close to being as overvalued as it is today. Consider the 20% of years since 1881 in which the CAPE ratio was the highest. Ninety percent of the time the 60/40 portfolio outperformed the S&P 500 over the subsequent decade.
That's far higher than the comparable percentage for the quintile of years in which the CAPE was lowest. For those years the 60/40 portfolio over the subsequent decade beat the S&P 500 just 31% of the time. This contrast is significant at the 95% confidence level that statisticians often use when determining if a pattern is genuine.
Out of favor - and just in time
The reason that the 60/40 portfolio has fallen out of favor is human nature: Investors tend to become less and less worried about risk as a bull market continues. As usual, famed investor Warren Buffett best articulated this tendency, from a Fortune magazine article in 1999:
"Once a bull market gets under way, and once you reach the point where everybody has made money no matter what system he or she followed, a crowd is attracted into the game that is responding not to interest rates and profits but simply to the fact that it seems a mistake to be out of stocks... Like Pavlov's dog, these 'investors' learn that when the bell rings - in this case, the one that opens the New York Stock Exchange at 9:30 a.m. - they get fed. Through this daily reinforcement, they become convinced that there is a God and that He wants them to get rich."
Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com
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-Mark Hulbert
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October 04, 2025 06:57 ET (10:57 GMT)
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