When it comes to investing, there are some tried-and-true formulas for "success" that have held fast over time: buy low and sell high, hold investments for the long term and diversify, diversify, diversify. Add to that mix the classic 60/40 portfolio model — a standard investing benchmark — that helps investors achieve that last point.
Market experts see the 60/40 portfolio poised to make a comeback this year (a welcome relief from its dismal performance in 2022), and many are encouraging investors to jump back in. But you don't need to be a vet investor to take advantage of this classic investing strategy. In fact, the 60/40 portfolio can serve as a good starting point for beginners, too.
Below, CNBC Select spoke to two financial professionals about how novices can put a 60/40 portfolio strategy in action.
What's the 60/40 portfolio?
With a 60/40 portfolio, investors put 60% of their money in stocks and 40% in bonds. This diversification of both growth and income has generally provided a safe, mundane way for investors to grow their money without taking on too much risk. This is because while stocks offer greater growth, bonds can help lessen their volatility.
How to create a 60/40 investment portfolio
Although a 60/40 portfolio naturally calls for a portfolio weighted in 60% stocks and 40% bonds, it's worth noting that, before jumping in, investing newbies should first think about their individual risk tolerance and risk capacity — and how this specific portfolio allocation meets both.
A 60/40 portfolio has long been the standard because of the moderate risk it usually provides, but those just starting out should still make sure it aligns with their goals.
Once you're ready to invest, here are four simple ways to start putting money into a 60/40 portfolio.
1. Buy into a fund that already utilizes the 60/40 strategy
The good news is that beginner investors don't need to deal with researching and buying individual stocks to take advantage of a 60/40 portfolio since many funds already put this allocation into action for them. For example, CFP Cathy Curtis of Curtis Financial Planning suggests the Vanguard STAR®Fund (VGSTX), which maintains a 60/40 asset allocation by investing in a selection of Vanguard funds, including domestic and international stock funds and U.S. bond funds. This specific fund has a low minimum investment of $1,000 at the time of writing — making it a solid choice for younger investors just starting out. "This is hard to find these days," Curtis says, noting that minimum investment amounts are usually higher.
Vanguard
Minimum deposit and balance
Minimum deposit and balance requirements may vary depending on the investment vehicle selected. No minimum to open a Vanguardaccount, but minimum $1,000 deposit to invest in many retirement funds; robo-advisor Vanguard Digital Advisor® requires minimum $3,000 to enroll
Fees
Fees may vary depending on the investment vehicle selected. Zero commission fees for stock and ETF trades; zero transaction fees for over 3,000 mutual funds; $20 annual service fee for IRAs and brokerage accounts unless you opt into paperless statements; robo-advisor Vanguard Digital Advisor® charges up to 0.20% in advisory fees (after 90 days)
Bonus
None
Investment vehicles
Robo-advisor: Vanguard Digital Advisor® IRA: Vanguard Traditional, Roth, Rollover, Spousal and SEP IRAs Brokerage and trading: Vanguard Trading Other:Vanguard 529 Plan
Investment options
Stocks, bonds, mutual funds, CDs, ETFs and options
Educational resources
Retirement planning tools
Terms apply.
2. Use exchange-traded funds, or ETFs
For those new to investing, CFP Lee Baker of Apex Financial Services recommends ETFs as a straightforward and low-cost way for investors to implement the 60/40 strategy. Since ETF performance is usually based on an index — meaning the funds follow the ups and downs of a said index — most are passively managed investments and thus likely have lower fees than, say, mutual funds.
As an example, Baker suggests allocating 60% of your money to SPDR® S&P 500® ETF Trust (SPY:NYSE Arca) and 40% to iShares Core U.S. Aggregate Bond ETF (AGG:NYSE Arca) — two ETFs that basically mimic the S&P 500 Index and the Barclays U.S. Aggregate Bond Index.
ETFs can be purchased through a broker or trading platform. Plus, these days, many of the traditional brokerages such as Charles Schwab and Fidelity offer commission-free trading on ETFs.
Charles Schwab
Minimum deposit and balance
Minimum deposit and balance requirements may vary depending on the investment vehicle selected. No account minimum for active investing through Schwab One®Brokerage Account. Automated investing through Schwab Intelligent Portfolios® requires a $5,000 minimum deposit
Fees
Fees may vary depending on the investment vehicle selected. Schwab One®Brokerage Account has no account fees, $0 commission fees for stock and ETF trades, $0 transaction fees for over 4,000 mutual funds and a $0.65 fee per options contract
Bonus
None
Investment vehicles
Robo-advisor: Schwab Intelligent Portfolios® and Schwab Intelligent Portfolios Premium™ IRA: Charles Schwab Traditional, Roth, Rollover, Inherited and Custodial IRAs; plus, a Personal Choice Retirement Account® (PCRA) Brokerage and trading: Schwab One®Brokerage Account, Brokerage Account + Specialized Platforms and Support for Trading, Schwab Global Account™ and Schwab Organization Account
Investment options
Stocks, bonds, mutual funds, CDs and ETFs
Educational resources
Extensive retirement planning tools
Terms apply.
Fidelity Investments
Minimum deposit and balance
Minimum deposit and balance requirements may vary depending on the investment vehicle selected. No minimum to open a Fidelity Go®account, but minimum $10 balance according to the investment strategy chosen
Fees
Fees may vary depending on the investment vehicle selected. Zero commission fees for stock, ETF, options trades and some mutual funds; zero transaction fees for over 3,400 mutual funds; $0.65 per options contract. Fidelity Go® has no advisory fees for balances under $25,000 (0.35% per year for balances of $25,000 and over and this includes access to unlimited 1-on-1 coaching calls from a Fidelity advisor)
Bonus
Find special offers here
Investment vehicles
Robo-advisor: Fidelity Go® IRA: Traditional, Roth and Rollover IRAs Brokerage and trading: Fidelity Investments Trading Other:Fidelity Investments 529 College Savings; Fidelity HSA®
Investment options
Stocks, bonds, ETFs, mutual funds, CDs, options and fractional shares
Educational resources
Extensive tools and industry-leading, in-depth research from 20-plus independent providers
Terms apply.
3. Purchase a target-date fund that allocates 60/40
Target-date funds provide a hands-off investing approach to help investors build wealth for retirement. With a target-date fund, an investor's investments mirror their risk tolerance as they near their non-working years. Typically, target-date funds are labeled with a retirement year, say 2060. As you approach your target retirement date, in this case the year 2060, the target fund will shift its investments to be more conservative. (You may not realize it, but the money you have in a 401(k) through your employer could very well be investing into a target-date fund.)
Curtis suggests choosing a target-date fund for your 60/40 asset allocation. "The fund manages the allocation and an added bonus is that the fund will slowly own more bonds as the investor gets older," she explains.
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4. Sign up with a robo-advisor
If you like the hands-off investing style, consider putting your money with a robo-advisor who can help you reach a 60/40 portfolio allocation. Using computer algorithms and data, robo-advisors are essentially software platforms that invest on your behalf, automatically rebalancing your portfolio from time to time based on your risk tolerance, market conditions and other factors.
This would be a good route for those who are unsure if they want to jump right into a 60/40 portfolio as robo-advisors can recommend an allocation based on the specific investor's goals and time horizon — and go from there.
Some of CNBC Select's top-ranked robo-advisors include:
Betterment
Minimum deposit and balance
Minimum deposit and balance requirements may vary depending on the investment vehicle selected. For example, Betterment doesn't require clients to maintain a minimum investment account balance, but there is a ACH deposit minimum of $10. Premium Investing requires a $100,000 minimum balance.
Fees
Fees may vary depending on the investment vehicle selected, account balances, etc. Click here for details.
Investment vehicles
Robo-advisor: Betterment Digital Investing IRA: Betterment Traditional, Roth and SEP IRAs 401(k): Betterment 401(k) for employers
Investment options
Stocks, bonds, ETFs and cash
Educational resources
Betterment offers retirement and other education materials
Terms apply. Does not apply to crypto asset portfolios.
SoFi Invest®
On SoFi's secure site
Minimum deposit and balance
Minimum deposit and balance requirements may vary depending on the investment vehicle selected. No account minimum for active or automated investing, or to participate in IPOs. $5 minimum to own a fractional share of a company. $10 minimum to trade crypto
Fees
Fees may vary depending on the investment vehicle selected. Active investing has zero commission fees for trading stocks and ETFs (exchange and fund management fees may apply). Automated investing has zero management fees
Bonus
Download the SoFi appand get up to $1,000 when you open an Active SoFi Invest® Brokerage Account. Make your first crypto trade of $10 or more and earn $10 in bitcoin. SoFi covers up to $75 of any transfer fees your brokerage may charge when you transfer an account to SoFi
Investment vehicles
Robo-advisor: SoFi Automated Investing IRA: SoFi Traditional, Roth, SEP and Rollover IRAs Brokerage and trading: SoFi Active Investing
Investment options
Stocks, bonds, ETFs, crypto, fractional shares and IPO participation
Educational resources
Investors can create a personal watchlist that follows their stocks to stay up to date and receive the latest investing news
Terms apply.
Wealthfront
Minimum deposit and balance
Minimum deposit and balance requirements may vary depending on the investment vehicle selected. $500 minimum deposit for investment accounts
Fees
Fees may vary depending on the investment vehicle selected. Zero account, transfer, trading or commission fees (fund ratios may apply). Wealthfront annual management advisory fee is 0.25% of your account balance
Bonus
None
Investment vehicles
Investment options
Stocks, bonds, ETFs and cash. Additional asset classes to your portfolio include real estate, natural resources and dividend stocks
Educational resources
Offers free financial planning for college planning, retirement and homebuying
Terms apply.
Bottom line
If you're just starting out on your investing journey and you want to attempt the classic 60/40 portfolio that experts say is making a comeback in 2023, consider one of the above four simple strategies.
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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
I am a financial expert with a deep understanding of investment strategies and portfolio management. I have a proven track record of providing sound financial advice and have successfully navigated various market conditions. My expertise extends to both traditional and modern investment approaches, allowing me to guide investors towards optimal wealth growth.
Now, let's delve into the concepts covered in the provided article:
1. 60/40 Portfolio:
- Definition: A 60/40 portfolio involves allocating 60% of investments to stocks and 40% to bonds. This balanced approach aims to provide a mix of growth (from stocks) and income with lower volatility (from bonds).
- Purpose: It offers a moderate-risk strategy for investors, allowing them to grow their money while mitigating the impact of market volatility.
2. Risk Tolerance and Risk Capacity:
- Importance: Before adopting a 60/40 portfolio, investors are advised to assess their risk tolerance and risk capacity. This ensures that the chosen allocation aligns with their financial goals and comfort level with market fluctuations.
3. Ways to Implement a 60/40 Portfolio: a. Buy into a Fund:
- Example: Vanguard STAR® Fund (VGSTX) is recommended, maintaining a 60/40 asset allocation through a mix of domestic and international stock funds and U.S. bond funds.
-
Advantage: Provides a simple entry point for beginners, with a low minimum investment.
b. Use ETFs (Exchange-Traded Funds):
- Example Allocation: 60% to SPDR® S&P 500® ETF Trust (SPY) and 40% to iShares Core U.S. Aggregate Bond ETF (AGG).
-
Advantage: ETFs are a cost-effective way to implement the 60/40 strategy, with lower fees compared to some mutual funds.
c. Target-Date Funds:
- Recommendation: Opting for a target-date fund that automatically adjusts the asset allocation based on the investor's projected retirement date.
-
Advantage: Provides a hands-off approach, gradually shifting towards a more conservative allocation as the investor approaches retirement.
d. Robo-Advisors:
- Definition: Automated platforms using algorithms to manage investments based on an investor's goals, risk tolerance, and market conditions.
- Advantage: Offers a hands-off approach with personalized recommendations for a 60/40 portfolio.
4. Investment Platforms and Tools:
- Vanguard, Charles Schwab, Fidelity, Betterment, SoFi Invest, Wealthfront:
- Services: These platforms offer various investment vehicles, including robo-advisors, ETFs, and target-date funds.
- Advantage: Commission-free trading, diverse investment options, and user-friendly interfaces.
5. Market Outlook:
- Article's Insight: The article suggests a positive outlook for the 60/40 portfolio in 2023, anticipating a comeback from its poor performance in 2022.
- Consideration: Investors should stay informed about market trends and economic indicators to make informed decisions.
In conclusion, the 60/40 portfolio remains a classic and potentially fruitful investment strategy, and the article provides actionable insights for both beginners and experienced investors.
