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Math Trumps Theory: An Alternative to 60/40
The most recent market crash of the early 2020s was the only market crash in history that saw the traditional 60/40investment portfolio experience a more painful loss than an all-equity portfolio. For the 60/40 (a traditionally "safer" investment made up of 60% stocks and 40% bonds) the crash was deeper and lasted longer than it did for stocks.Investors usually choose 60/40 portfolios to help protect against losing money, which is why it is such a common makeup for retirement plans. But what does it mean for the future of 60/40 if it doesn't always do what it's supposed to? Is the 60/40 model dead? If so, it might be time to explore other options.
The 60/40 model is popular with retirees because it historically had a lower loss potential than an all-equity portfolio.¹ Over the past 150 years, stocks have experienced 19 bear markets while the 60/40 portfolio has experienced 11.¹ But the total loss isn't the only factor in determining how painful a market decline is. The pain index considers both the depth and duration of a market decline. Bottom line: 60/40 has always been less painful than all-equities - until the 2020s.
During the Great Depression, stocks lost 79% where a 60/40 portfolio lost 52.6%. It was four times more painful for stocks than a 60/40. During the lost decade, stocks lost 54% where a 60/40 portfolio lost 24.7%. It was nearly eight times more painful for stocks than 60/40 even though the drawdown was only double. The 60/40 portfolio experienced 45% less pain than an all-equities portfolio over the past 150 years.¹
So 60/40 has until recently done its job on the downside, but what about the upside? Historically, 60/40 hasn't gained as much as equities, but that's because it's not supposed to. The average retiree with a 60/40 portfolio isn't trying to gain as much as possible in the drawdown phase of life, so it's a fine trade-off for most.
But here's the thing: Gains matter just as much as losses, even during the 30 or so years of a person's retirement. $1 invested in a hypothetical 100% equity index in 1870 would be worth $33,033 as of August 31, 2025 (adjusted for inflation). That same dollar invested in a 60/40 portfolio would only be worth $4,203.1 So how much is mitigating pain really worth if you end up mitigating gains significantly over time with a traditional 60/40? Especially when 60/40 works in theory, but as we've seen over the past five years, not always in practice.
Investing has evolved a lot since 60/40 was popularized in the 1980s. The first ETF, SPDR S&P 500 ETF (SPY), didn't even exist until 1993. The recent crash proved that the 60/40 model doesn't always deliver on its promises, and retirees can't afford to be wrong like that. Fortunately, there are other products that offer downside protection while maintaining strong exposure to equity gains. These products aren't theory, they're math.
One such math-based product is the TrueShares Convex Protect ETF (PVEX). It's designed to participate in the growth of U.S. large-cap equities while aiming to cushion against significant market declines. Like a 60/40 portfolio, it offers downside protection and risk mitigation. Unlike 60/40, it doesn't sacrifice big gains in exchange for such protection.60/40 might be dead, but there are other strategies eager to take its place.
1. https://www.morningstar.com/economy/6040-portfolio-150-year-markets-stress-test
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