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Historical 60-40 (150+ Years)

yogibearbullyogibearbull
edited August 19 in Fund Discussions
Historical 60-40 (150+ Years)

A historical view is presented for allocation 60-40 over 150+ years (real returns; +5.56% for 60-40 vs +6.98% for 100-0; the cumulative return differences appear more dramatic) & 5 years (nominal returns?). The 2022-24 period (post-pandemic & Russia-Ukraine war) was among the worst periods for 60-40 & its drawdown was comparable to 100-0 (i.e. bonds offered no help) - it had never happened before.

For drawdowns, both the max & recovery period are important. A "Lake Volume" measure is used that seems to be the area of the drawdown (precise methodology isn't provided, but it could just be proportional to the average decline for the drawdown). Then, there are 2 ways to look at this in a Table shown:

(i) the worst 1929 era lake-vol was used as 100% (max "pain"), & then all others are shown as relative % or relative "pain" measure,

(ii) in each drawdown, the difference in normalized lake-vol % for 60-40 & 100-0 as reduction in pain with 60-40.

Of course, compared to the 1929 era, 2022-24 was a nonevent (but unique in its own way).

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Morningstar Article https://www.morningstar.com/economy/6040-portfolio-150-year-markets-stress-test
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