The Markets Can’t Save You If You Don’t Save

A 60/40 portfolio of U.S. stocks and U.S. bonds has only finished the year down double digits just 5 times in the past 94 years through year-end 2021.1

With stocks and bonds both down around 15% each in 2022 so far, it appears this year will be the 6th time in 95 years:

If we finished the year where things stand as of today, it would be the third worst year for a 60/40 portfolio in almost 100 years.

The only years it was down more than this occurred in the 1930s. In 1931, a 60/40 portfolio was down 27.3%. Then in 1937, a diversified portfolio fell 20.7%.

“There’s nowhere to hide” is a common refrain this year.

I’ve always been of the mindset that long-term returns are the only ones that matter. Anything can happen in the short-term. Diversification only works for patient people.

It’s also understandable why many investors are frustrated with this year’s performance, especially retirees.

It can be scary if you experience bad returns at the wrong time.

The Wall Street Journal had a story this week that detailed the struggles of a 60/40 portfolio this year and how it’s impacting investors who retired in recent years:

Eileen Pollock, a 70-year-old retiree living in Baltimore, has seen the value of her portfolio, with a roughly 60-40 mix, dip by hundreds of thousands of dollars. The former legal secretary had amassed more than a million dollars in her retirement accounts. To build her savings, she left New York to live in a less expensive city and skipped vacations for many years.

“A million dollars seems like a great deal of money, but I realized it’s not,” she said. “I saw my money was piece by large piece disappearing.”

This year has been terrible for a diversified mix of stocks and bonds but if we zoom out, the returns coming into this year were lights out for a 60/40 portfolio.

In the 3, 5 and 10 years ending in 2021, a 60/40 portfolio of U.S. stocks and bonds was up 63%, 81% and 184%, respectively.2

Even if we include this year’s 15% or so loss in the…

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