Living with a 60/40 portfolio - Ouch!

 

Some facts about the combination of 60% SPY and 40% AGG. No protection from the classic diversification portfolio.

Through April 2022, the -11.5% return is the worst year ever recorded from a start date of 1977. This is 730 bp below the next worse year, 1977. It looks like the 60/40 portfolio is down 13% through the market close today.

There has never been a down SPY with the AGG also being negative. This year both are stocks and bonds are down double digits. There is no diversification benefit. The return to risk ratio is more negative for bonds than stocks in 2022.

This the first time the SPY and AGG are both in double digit drawdowns at the same time.

April was the worst month for the NASDAQ composite in 20 years; Investors have to go back to the tech bubble burst in 2021.

On a year to date basis, SPY is down the most since 1939. 

Inflation is at the highest level (CPI YOY) since 1981 which has been a significant drag on bonds.

Other assets have reflected bubble behavior. Median home prices to household income is at the highest level ever recorded at 6.5. It was at 4.8 just two years ago. The average new home price is approximately $524,000, up 26% in one year. Home prices are up 114% by the Case-Shiller index since the low in 2012.