The 60/40 portfolio is one of the most familiar shorthand recipes in investing: 60% equities for growth, 40% fixed income for stability. Here is how it works, what it aims to solve, and where the debate about it stands today.
A 60/40 portfolio is a simple asset allocation model: 60% of the portfolio is invested in equities (stocks, usually spread across Canadian, U.S., and international markets) and 40% is invested in fixed income (bonds, typically a mix of government and corporate bonds across different maturities). The number itself is less important than the idea it represents: combining two asset classes that tend to behave differently so the portfolio as a whole is less bumpy than an all-equity portfolio.
This is not a formula unique to any one investor or institution. It is a general framework that has been used for decades by individuals, advisors, and pension-style funds as a starting point for a balanced portfolio. Some investors implement it literally with two funds; others approximate the spirit of it with a broader mix of asset classes.
Equities and bonds have different jobs in a portfolio. Equities represent ownership in companies, and their value moves with corporate earnings, economic growth expectations, and investor sentiment. They are the primary engine of long-term growth in a portfolio, but they can also swing sharply in value over short periods.
Bonds are loans made to a government or a corporation, and they return a defined stream of interest (plus principal at maturity, credit risk aside). Because their cash flows are more predictable, bond prices generally fluctuate less than stock prices, though bond prices do move, particularly with changes in interest rates.
The core reasoning behind a 60/40 split is diversification between asset classes: equities and bonds do not always move in the same direction at the same time, so blending them can smooth out the overall path of a portfolio compared to holding equities alone. The 40% allocated to fixed income is meant to act as a stabilizer and a source of liquidity, while the 60% in equities is meant to provide the growth needed to outpace inflation over the long run.
It's worth being precise about what this diversification does and does not do. It does not eliminate the possibility of losses, and it does not guarantee that bonds will rise when stocks fall in any given period. It simply reflects the general tendency of these two asset classes to respond to different economic drivers.
In a typical setup, the equity portion of a 60/40 portfolio drives most of the portfolio's long-term return potential, while the bond portion tends to dampen swings during periods of stock market stress. In strong bull markets for equities, a 60/40 portfolio will generally lag a 100% equity portfolio, because 40% of the money is sitting in a lower-growth asset class.
In periods of equity market stress, the bond allocation has historically been expected to hold up better than stocks, cushioning the overall decline — though this relationship is not automatic and depends heavily on the broader interest rate and economic environment. There have been periods where stocks and bonds fell together, most notably when inflation concerns push interest rates higher, since rising rates tend to reduce the value of existing bonds at the same time that they weigh on stock valuations.
This means a 60/40 portfolio is best understood as a way to manage volatility and smooth the investing experience over a full market cycle, not as a guarantee of positive returns in every environment or every year.
The 60/40 model has faced real scrutiny, especially around two questions that come up regularly among Canadian investors and commentators.
Is 60/40 still relevant? Critics point out that the traditional relationship between stocks and bonds is not fixed. In some environments, both asset classes have declined together, which undermines the core diversification premise. Others argue that the model remains a reasonable, low-maintenance framework precisely because no one can reliably predict which environment is coming next — the point of the split is not to be right about the future, but to avoid being fully exposed to any single outcome.
Rate sensitivity of bonds. Bond prices are sensitive to interest rate changes: when rates rise, the price of existing bonds with lower fixed coupons tends to fall, and vice versa. This sensitivity is more pronounced for longer-duration bonds. Some investors address this by shortening the average duration of their bond holdings or diversifying bond types (government, corporate, real-return bonds), rather than abandoning fixed income altogether.
Neither of these criticisms invalidates diversification as a concept — they are reminders that no fixed split is a permanent guarantee, and that the right mix depends on an investor's own time horizon, goals, and tolerance for volatility.
There is no universally "correct" ratio — some investors also use a glide-path approach, gradually shifting from more equities to more fixed income as a goal like retirement approaches.
60/40 is a reference point, not a rule. Many investors adjust the ratio based on age, time horizon, and comfort with short-term volatility:
There is no universally "correct" ratio. The right split reflects an individual's time horizon, income needs, and psychological tolerance for seeing their portfolio value drop temporarily.
Historically, building a 60/40 portfolio meant selecting and rebalancing separate equity and bond funds by hand. Canadian investors now have access to asset-allocation ETFs — single funds that hold a fixed mix of global equities and bonds (for example, a fund explicitly built around a 60/40 or 80/20 split) and rebalance automatically behind the scenes.
These all-in-one ETFs have made the 60/40 concept far more accessible: an investor can hold one ticker in a TFSA, RRSP, or non-registered account and get instant diversification across asset classes, sectors, and geographies, without manually tracking and rebalancing multiple holdings. This simplicity is a major reason the 60/40 framework remains popular with DIY investors today, even amid ongoing debate about its long-term merits.
Whether you hold a single asset-allocation ETF or build your own mix of equity and bond funds, tracking how your actual allocation drifts over time relative to your target is part of staying disciplined. Tools like WealthWise can help Canadian investors see their real equity/fixed-income split across accounts in one place.
The value of any fixed ratio comes from choosing an allocation you can stick with across different market conditions, rather than switching strategies every time markets move.
A 60/40-style portfolio tends to appeal to investors who want meaningful growth potential but are not comfortable with the full volatility of an all-equity portfolio — often those with a medium-to-long time horizon, or those who value simplicity and want to avoid actively managing a more complex mix of holdings. It is less suited to investors with a very short time horizon (who may need more stability) or those with a very long horizon and high risk tolerance, who might prefer a higher equity weighting to maximize long-term growth potential.
Ultimately, the value of any fixed ratio — 60/40 or otherwise — comes from choosing an allocation you can stick with across different market conditions, rather than switching strategies every time markets move.
There's no single answer that applies to everyone. The 60/40 split is a general framework for balancing growth and stability, and its usefulness depends on an investor's time horizon, goals, and comfort with volatility — not on predicting what markets will do next.
Bond prices are sensitive to interest rate changes. When rates rise — often in response to inflation concerns — the price of existing bonds can fall at the same time that rising rates weigh on stock valuations, which is why stocks and bonds don't always move in opposite directions.
The right ratio depends on your personal time horizon and risk tolerance, not a fixed rule. Investors with a longer horizon sometimes lean toward more equities (like 70/30 or 80/20), while those closer to needing the money often lean toward more fixed income.
Many Canadian investors use a single all-in-one asset-allocation ETF that holds a fixed global mix of equities and bonds and rebalances automatically, rather than managing several separate funds by hand.
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