This year is not shaping up to be the worst in U.S. history for a balanced 60% stock/40% bond portfolio. It’s important to point this out not just to correct the misleading historical narrative that has been spreading around some corners of Wall Street—a narrative I’ve seen mentioned a half-dozen times over the last few weeks. It’s also important because retirees and others who invest in balanced portfolios may be tempted to respond impetuously if they believe that what they’ve suffered this year has never been experienced before.
It most definitely has happened before, as I’ll discuss in a moment. But first, there’s no denying that it’s been a bad year for balanced stock/bond portfolios. Your year-to-date loss through Sep. 15 would be 20.4% if your portfolio allocated 60% to the Vanguard Total Stock Market Index fund
and 40% to the Vanguard Long Investment Grade fund
For the full year 2021, in contrast, this portfolio would have gained 14.4%, according to FactSet data. It would have done even better in 2020, gaining 18.7%. With double-digit gains like those, many retirees became spoiled, expecting something similar this year as well. But when we expand our vision to the long-term, we see that the 60%/40% portfolio’s year-to-date performance, while worse than the historical average, is by no means the worst. In fact, you don’t have to go that far back to find a calendar year that was even worse: In 2008, a 60%/40% portfolio invested in VTSMX and VWESX lost 21.3%. To determine which year was the worst for a balanced stock/bond portfolio, I turned to the historical database dating back to 1793 compiled by Edward McQuarrie, professor emeritus at the Leavey School of Business at Santa Clara University. Because McQuar …