Is a 60/40 Portfolio Still Good for Canadian Investors?

Understanding the 60/40 Portfolio

The 60/40 portfolio has long been associated with a classic balanced portfolio approach. In general, the model refers to an asset allocation made up of approximately 60% equities and 40% fixed income investments such as bonds or bond funds.

For many years, the concept has been widely discussed in relation to diversification and risk management. The combination of stocks and bonds has often been viewed as a way to balance growth potential with income generation and lower volatility relative to an all equity portfolio.

In recent years, however, questions such as “Is 60/40 portfolio still good?” have become more common among Canadian investors. Market conditions, inflation concerns, changing bond yields, and rising interest rates have all contributed to renewed discussion around the structure of the traditional asset mix.

While the 60/40 portfolio continues to be widely recognized, the way investors evaluate it may depend on several factors, including risk tolerance, investment objectives, and time horizon.

What Is a 60/40 Portfolio?

A 60/40 portfolio is a form of asset allocation that divides investments between two primary asset classes:

• 60% equities

• 40% fixed income

The equity portion may include Canadian, U.S., or international stocks across different sectors and company sizes. The fixed income portion often includes government bonds, corporate bonds, bond funds, or other income-focused investments.

The purpose of combining both equities and bonds is generally linked to diversification. Equities may provide growth opportunities over the long run, while bonds can contribute income and may reduce overall portfolio volatility during certain market conditions.

Because of this balance, the 60/40 portfolio has often been associated with investors who have a moderate risk tolerance. However, the allocation itself does not guarantee positive returns or reduced losses during every market environment.

Why the 60/40 Portfolio Became Popular

The popularity of the classic balanced portfolio has often been tied to the historical relationship between stocks and bonds. In some periods, bonds and equities demonstrated a negative correlation, meaning that when equity markets declined, bond prices sometimes moved differently.

This relationship contributed to the idea that diversification across asset classes could help smooth returns over time.

The fixed income portion also became more attractive during periods of relatively higher bond yields. Investors seeking income could often access regular interest payments while maintaining exposure to equities for growth potential.

Following events such as the 2008 financial crisis, many investors continued to focus on balanced asset allocation models that combined growth and defensive characteristics.

At the same time, central banks around the world introduced low interest rates for extended periods. Those policies influenced both equities and bond markets and shaped discussions around expected returns for traditional balanced portfolios.

Why the 60/40 Portfolio Came Under Pressure

The 60/40 portfolio came under greater scrutiny during the market environment of 2022. The classic balanced portfolio has often been associated with diversification across stocks and bonds, with the expectation that fixed income could help offset some equity market declines during periods of volatility.

In 2022, however, both equities and bonds experienced pressure at the same time. Rising interest rates, inflation concerns, and shifting expectations around central bank policy contributed to declines across multiple asset classes. This challenged a commonly discussed assumption that bonds would consistently provide stability when equities weakened.

As a result, some investors began reassessing the role of traditional asset allocation models and the relationship between stocks and bonds during inflation-driven environments.

Why This Keyword Exists

The phrase “Is 60/40 portfolio still good?” became more common as investors questioned whether the traditional asset mix continued to function as expected during periods of market stress.

The criticism surrounding the 60/40 portfolio was not necessarily based on short-term reactions alone. For many market participants, the simultaneous decline in both equities and fixed income represented a meaningful shift from prior expectations around diversification and negative correlation.

Rather than treating those concerns as irrational, discussions around the 60/40 portfolio often focused on how changing economic conditions may influence bond returns, volatility, and expected returns going forward.

The debate also reflected broader questions about inflation, rising interest rates, and whether traditional bond allocation models may behave differently under changing market conditions.

How a 60/40 Allocation Balances Growth and Stability 

The 60/40 portfolio continues to be part of many discussions around asset allocation and diversification. While recent market conditions have led some investors to reassess the classic balanced portfolio, the approach may still align with certain financial goals, timelines, and comfort levels with risk.

Rather than applying universally, the relevance of a 60/40 portfolio may depend on the role the portfolio plays within a broader financial plan.

Balancing Growth Exposure With Reduced Volatility 

For some investors with a moderate risk tolerance, a 60/40 portfolio may offer a balance between growth exposure and fixed income stability. An investor focused on building wealth over a long time horizon may still want meaningful exposure to equities, while also preferring some reduction in volatility compared with a fully equity-based portfolio.

For example, someone investing for retirement over several decades may feel comfortable with market fluctuations to a certain extent, but may not want the larger swings that can come with an 80/20 or 100% equity asset mix.

In this type of scenario, the combination of stocks and bonds may help create diversification across asset classes while still maintaining exposure to long-term growth opportunities.

The allocation itself may not suit every investor, but for some individuals, the 60/40 portfolio can reflect a middle ground between growth potential and risk management considerations.

How Bond Allocation May Contribute to Income and Stability 

A 60/40 portfolio may also appeal to retirees or near-retirees who continue to seek growth while placing greater importance on stability and income generation.

For example, an investor approaching retirement may still need portfolio growth to support a longer time horizon, particularly as retirement periods can span several decades. At the same time, that investor may prefer more fixed income exposure than a heavily equity-weighted portfolio provides.

In these situations, bond allocation may serve multiple purposes, including income generation and potentially moderating volatility during uncertain market periods.

The suitability of a 60/40 portfolio can depend heavily on personal circumstances, including timeline, spending needs, income sources, and overall comfort with market risk.

When 60/40 May Not Be the Best Answer

Although the 60/40 portfolio remains widely recognized, it may not align with every investor’s goals, timeline, or comfort with risk. The discussion often comes down to fit rather than whether the allocation itself is universally appropriate or inappropriate.

Different investors may respond differently to market volatility, income needs, and long-term growth expectations. Because of this, the same asset mix can feel too conservative for some individuals and too aggressive for others.

When It May Be Too Conservative

Compared with allocations that carry a higher proportion of equities — such as 70/30, 80/20, or a fully equity-based portfolio — a 60/40 mix generally involves a smaller allocation to growth assets and a larger allocation to fixed income.

Historically, higher-equity allocations have been associated with greater long-term growth potential, alongside larger short-term fluctuations in portfolio value. A 60/40 structure, by comparison, tends to reduce both the magnitude of potential gains during strong equity markets and the depth of declines during downturns, since a larger share of the portfolio sits in fixed income rather than equities.

This does not mean the 60/40 portfolio lacks value in every context. Rather, it reflects a structural trade-off between the two asset classes: a heavier equity allocation increases both expected growth potential and volatility, while a heavier fixed income allocation reduces both.

The comparison between allocation models often comes down to how these mechanical trade-offs — expected returns versus volatility — play out under different market and interest rate conditions, rather than any single allocation being universally stronger than another.

When It May Be Too Aggressive or Psychologically Mismatched

For some investors, a 60/40 portfolio may still involve more volatility than they feel comfortable accepting, particularly if the money may be needed in the near future.

An investor approaching a major purchase, retirement transition, or shorter time horizon may react differently to market declines than someone investing over several decades.

The portfolio may also feel mismatched if an investor expects the entire allocation to behave with bond-like stability at all times. Even with a significant fixed income allocation, equities can still contribute to periods of meaningful drawdowns.

Because of this, comfort with volatility and expectations around portfolio behavior can remain important parts of asset allocation discussions.

The Role of Diversification in a 60/40 Portfolio

Diversification is one of the central concepts behind the 60/40 portfolio. Instead of relying on a single asset class, the portfolio spreads investments across different types of securities.

A diversified portfolio may include:

• Canadian equities

• U.S. equities

• International equities

• Government bonds

• Corporate bonds

• Bond funds

• Short-term fixed income securities

Diversification does not eliminate risk, but it may reduce the impact of large declines in a single asset class.

For example, equities can experience periods of significant volatility during economic slowdowns or market uncertainty. Bonds, meanwhile, may react differently depending on inflation expectations, central bank decisions, and economic growth conditions.

Because different asset classes may perform differently over time, diversification continues to play an important role in many portfolio construction discussions.

Why Construction Quality Matters as Much as the Ratio

A modern 60/40 portfolio can vary significantly depending on how the underlying investments are selected and managed.

Some portfolios may include broad global diversification across multiple asset classes, low-cost investment products, and automatic rebalancing features. Others may rely heavily on a narrow group of domestic equities or concentrated sectors, which can create a different risk profile despite using the same 60/40 label.

For example, one portfolio could hold thousands of securities across global markets, while another may focus primarily on Canadian banks, energy companies, and domestic bonds. Both portfolios may technically follow a classic balanced portfolio structure, but the diversification characteristics can differ meaningfully.

The quality of construction may also influence factors such as:

• Geographic exposure

• Sector concentration

• Currency exposure

• Bond duration

• Overall volatility

As a result, not every 60/40 portfolio may behave the same way during changing market conditions.

A Globally Diversified 60/40 Is Not the Same as a Canada-Heavy One

Some globally diversified balanced portfolios include exposure to several equity and fixed income markets rather than concentrating primarily on Canadian securities.

For example, a diversified asset mix may include:

• Canadian equity

• U.S. equity

• Developed markets outside North America

• Emerging markets

• Canadian aggregate bonds

• U.S. aggregate bonds hedged to CAD

• Global ex-U.S. aggregate bonds hedged to CAD

This type of allocation can differ significantly from a simpler portfolio made up of 60% Canadian stocks and 40% Canadian bonds.

The broader global exposure may create different diversification characteristics, sector balances, and currency considerations compared with a more concentrated Canada-focused portfolio.

60/40 vs 70/30, 80/20, and All-Equity

Different asset allocation models can produce different experiences for investors over time. Portfolios with higher equity exposure may provide greater growth potential, but they can also involve larger swings in value during periods of market stress.

Because of this, comparisons between 60/40, 70/30, 80/20, and all-equity portfolios often focus on the balance between expected returns and volatility.

The Upside vs Volatility Trade-Off

Portfolios with higher allocations to equities, such as 70/30 or 80/20 mixes, may offer higher expected long-term returns compared with a traditional 60/40 portfolio. Greater exposure to equities can increase participation during strong market periods and long-term growth cycles.

At the same time, a higher equity allocation can also increase volatility and lead to deeper drawdowns during market declines.

For some investors, larger fluctuations in portfolio value may feel manageable. Others may find those periods emotionally difficult, particularly during prolonged downturns or periods of uncertainty.

The risk is not limited to market declines alone. Investor behaviour can also become a factor when volatility increases significantly.

Because of this, discussions around asset mix often involve both financial considerations and personal comfort with risk.

Why 60/40 Is a Deliberate Trade-Off, Not a Weak Compromise

A 60/40 portfolio may be viewed as a deliberate balance between growth exposure and portfolio stability rather than simply a middle-ground compromise.

Compared with an all-equity portfolio, the fixed income allocation may reduce some upside potential during strong equity markets. However, bonds may also help moderate overall portfolio volatility during certain market conditions.

For some investors, that trade-off can create a more manageable investment experience over time.

The appeal of a 60/40 portfolio may therefore relate less to maximizing returns and more to balancing growth potential with the ability to remain comfortable during changing market environments.

60/40 in Canada: Exchange-Traded Funds (ETFs), Home Bias, and Rebalancing

Canadian investors often access a 60/40 portfolio through asset allocation ETFs rather than building separate holdings for equities and fixed income. These products have become more common because they combine diversification, automatic rebalancing, and simplified portfolio management within a single investment vehicle.

The structure of these ETFs can also influence how investors manage portfolio drift and home bias over time.

Why All-in-One ETFs Matter in the Canadian Context

Many Canadian investors implement a classic balanced portfolio through all-in-one ETFs. These funds generally target a roughly 60/40 asset mix and include exposure to multiple equity and fixed income markets within a single product.

One reason these balanced wrappers receive attention is their automatic rebalancing process. Over time, market movements can cause a portfolio’s asset allocation to drift away from its original target. Equities may grow faster than bonds during strong market periods, which can gradually increase portfolio risk exposure.

Automatic rebalancing can help maintain a portfolio closer to its intended allocation without requiring ongoing manual intervention from the investor.

The Real-World Cost of Not Rebalancing

Portfolio drift can become meaningful over time, particularly during extended equity market rallies.

For example, an unmanaged balanced portfolio that began near a 60% equity allocation could gradually drift closer to 70% equities over several years if left untouched. In comparison, a rebalanced portfolio may remain closer to its original allocation target.

This difference can influence the portfolio’s overall risk profile and volatility exposure, even if the investor did not intentionally change their asset mix.

Because of this, automatic rebalancing has become one of the more practical features associated with balanced ETF structures in Canada.

Key Takeaways About the 60/40 Portfolio for Canadian Investors

The 60/40 portfolio continues to be a widely discussed form of asset allocation, particularly in the context of diversification between stocks and bonds. Its relevance may vary depending on factors such as interest rates, inflation, time horizon, and individual risk tolerance. For some Canadian investors, it can represent a familiar balance between growth and fixed income exposure, while for others it may feel either too conservative or too equity exposed, depending on personal circumstances. The composition of the underlying assets, account location, and rebalancing approach can also influence how the portfolio functions in practice.