Balanced Portfolios: Keeping it Real

It’s important for clients to understand what they’re getting themselves into with a typical balanced portfolio.

The following charts show the distribution of real historical returns over 1, 5, and 10 year horizons for a portfolio consisting of 60% stocks and 40% bonds.

Some facts clients might not be aware of:

  • A balanced portfolio can drop as much as 35% in any given year
  • Balanced portfolios have delivered negative real returns over 10 year periods 15% of the time
  • Over all rolling 5 year periods, a balanced portfolio has yielded real returns ranging from -10% through +22% annualized

Chart 1. Probability of negative real returns to a 60/40 U.S. stock/bond portfolio over 1, 5 and 10 year horizons

Source: Shiller, Federal Reserve

Chart 2. Range of real returns to a U.S. 60/40 stock/bond portfolio over 1, 5, and 10 year horizons

Source: Shiller, Federal Reserve

Chart 3. Frequency distribution of real returns to U.S. 60/40 stock/bond portfolio over rolling 12 month periods

Source: Shiller, Federal Reserve   Chart 4. Frequency distribution of real returns to U.S. 60/40 stock/bond portfolio over rolling 5 year (60 month) periods

 Source: Shiller, Federal Reserve

Chart 5. Frequency distribution of real returns to U.S. 60/40 stock/bond portfolio over rolling 10 year (120 month) periods.

 Source: Shiller, Federal Reserve