Is the 60/40 Portfolio Dead?

2022 tested the core assumption behind the 60/40 portfolio: that bonds reliably cushion stock market declines. As the Federal Reserve raised interest rates aggressively to fight inflation, both the S&P 500 and the broad bond market fell in the same calendar year — a genuinely rare event in the historical record.

Does that mean the 60/40 portfolio is broken? Not necessarily. The negative correlation between stocks and bonds has always been a historical tendency, not a law of physics, and it tends to weaken specifically during periods when inflation surprises are the dominant driver of markets, rather than growth surprises. In a growth scare or recession, bonds have continued to do their job of rallying while stocks fall. In an inflation scare, both can fall together, because rising rates hurt bond prices directly while also pressuring equity valuations.

Backtesting the 60/40 portfolio on this site over rolling 10-year periods shows that 2022-style years are the exception rather than the rule — most decades still show bonds meaningfully reducing the portfolio's overall volatility and drawdown relative to an all-stock allocation. The bigger lesson from 2022 isn't that 60/40 is dead, but that investors who want protection specifically against inflation shocks should consider adding a dedicated inflation hedge, such as gold, commodities, or TIPS, rather than relying on nominal bonds alone. Portfolios like the Golden Butterfly or All Weather Portfolio, which include exactly those assets, held up meaningfully better in 2022 than a plain 60/40 split.

Try running your own 60/40 backtest through several historical periods, including 2022, in the simulator to see the effect for yourself.