By Ian Salisbury

The classic 60/40 portfolio is holding up well in this nasty selloff, which the Trump tariffs sparked. Investors must be breathing a sigh of relief.

The diversification, or "balanced," strategy -- 60% in stocks and 40% in bonds -- is based on the premise that stocks and bonds usually move in opposite directions. When one falls, the other rises -- evening out returns. It's a simple way to build a retirement portfolio that can withstand wildly sharp drops in the stock market.

Even this year, with federal spending cuts and now tariffs and more economic uncertainty, the 60/40 portfolio has done relatively well compared to the S&P 500, according to Morningstar.

The average balanced fund is down only about 5.5%, based on Morningstar's "Moderate Allocation" category, which includes funds with stock exposure ranging from 50% to 70%. The S&P 500 is down 14%.

The 60/40's relatively small losses are because of a rally in bond prices, which have surged as investors rush to safety. And that's exactly how it's supposed to work.

But the strategy can stumble, too. In 2022, for example, high inflation led both stock and bonds to fall at once. The S&P 500 fell 18%, while balanced funds dropped almost as much -- 14%.

Over the weekend, Treasury Secretary Scott Bessent pointed to the 60/40's strong performance to argue that everyday Americans will shrug off the stock market's volatility.

"Most Americans don't have everything in the market," he said Sunday on NBC's Meet the Press. "Most Americans in a 401(k) have what's called a 60/40 account...they are down 5% or 6% on the year. People have a long-term view."

Bessent is right about balanced funds, but his broader point looks shakier.

Vanguard's most recent How America Saves report, which tracks 401(k) holdings, showed that stock allocations vary widely by age. Allocations of 60% or less were indeed common for investors 60 and over, but not for younger ones. The average stock allocation for 29- to 35-year-olds was 88%. For 50- to 54-year-olds, it was 73%.

Cathleen Tobin, a financial advisor in Rhinebeck, N.Y., has drilled her clients on the benefits of diversification and keeping enough emergency cash on hand. That's why, she thinks, they've mostly taken the selloff in stride.

Tobin doubts that investors who don't have a financial advisor are as calm. New clients frequently come to her with portfolios made up of just S&P 500 stocks and cash.

"They are likely hiding under the table," she said. "Talk to someone in a restaurant or a bar...the freakout is real."

Write to Ian Salisbury at ian.salisbury@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

April 07, 2025 15:38 ET (19:38 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.