Vanguard Flips the Script on 60/40 Rule
The investment company says advisors and investors should break from the traditional strategy and take on more defensive positions this year.

Sign up for market insights, wealth management practice essentials and industry updates.
The 60-40 rule isn’t dead, just inverted.
The classic portfolio split, which favors the lion’s share of investments going to stocks with the remaining 40% in bonds, has been a bedrock of advisor portfolios for decades. After a two-year stock market run, however, the bulls may be getting gassed. In a recent outlook report, Vanguard suggested advisors and investors allocate just 38% of their portfolios to stocks and put the remaining 62% toward fixed income. The world’s second-largest asset manager has been edging toward defensive strategies for the past few years, suggesting a 41/59 ratio last year after calling for a 50/50 split in 2023.
“While the 40/60 allocation is not a one-size-fits-all solution, it could be appropriate for investors who are willing to take on some active risk in pursuit of better risk-adjusted returns,” Vanguard senior investment strategist Todd Schlanger told The Daily Upside.
Outlook Not So Good
Vanguard is recommending advisors put their, well, guards up, after the US economy’s post-pandemic tear led to soaring stock prices. “We expect high valuations and stretched margins to be meaningful headwinds to US equity returns over the long term,” the Vanguard report said.
Another motivator is higher-for-longer interest rates. The Federal Reserve started cutting rates in September, with two more reductions in November and December. Current Fed rates sit between 4.25% and 4.50%, and the central bank remains cautious on any further slashing. That monetary policy, which can be seen in economies around the world, sets the foundation for solid cash and fixed income returns over the next decade, Vanguard said.
Agree to Disagree: While groups like PIMCO have also suggested the 40/60 flip, some asset managers are still hedging their bets on stocks.
“We currently have a modest tilt to equities relative to fixed income,” said Charles Shriver, a T. Rowe Price portfolio manager. The Baltimore based firm adjusts its asset allocations based on a six-to-18-month outlook, he said, whereas the Vanguard report is a long-term, 10-year forecast.
Financial planning firm Facet also disagreed with the Vanguard report. “This is an extremely aggressive posture, one that probably only works if there’s an imminent bear market,” Facet CIO Tom Graff told The Daily Upside. “Calling tops and bottoms of the market is so extremely difficult, and if you get the timing just a little wrong, it is a loser trade.”