Market Commentary 12/31/22

The News of My Death Has Been Greatly Exaggerated

The quote above has been attributed to Samuel Clemens (more commonly known by his pen name, Mark Twain), when contacted by an English journalist to inquire whether the rumors that he was gravely ill, or dead, were indeed true. Clemens was in good health and wrote back to the journalist using a version of the quote we know so well today. While the quote above may not have been his exact response, it is a good one, nonetheless. 

This comes to mind lately as I have been reading the commentary by financial journalists regarding the market action over the past year, specifically in regard to what is referred to as the 60/40 portfolio. The 60/40 portfolio is an investment allocation model investing 60% of the total portfolio in stocks, and 40% of the portfolio in bonds and cash. It is popular among investors and financial advisers because that investment allocation has generated the best return relative to risk over numerous market cycles. The relationship has generally been the case for almost seven decades, until this past year. Through the first nine months of the year, stocks (as measured by the S&P 500 index) were down approximately 23%, while bonds (as measured by the Bloomberg Barclay Intermediate Treasury index) were down approximately 12%. Both asset classes turned higher during the final quarter, but not enough to significantly change the relationship. The results were enough to prompt articles on “the death of the 60/40 portfolio”. But, to paraphrase Clemens, the stories of the demise of the 60/40 portfolio might be greatly exaggerated. I don’t think that a portfolio allocation with seven decades of history should be tossed aside because of one bad year. This also highlights the mistaken tendency to project short term investment results as a guide to long-term decisions. Every investment disclosure reminds us of that fact, but it is frequently forgotten.


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