Is the classic 60/40 investment strategy still the way to go?

A slump in the US long bond is clouding the comeback of a classic investment strategy.

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The so-called 60/40 portfolio—long recommended for investors who want to balance exposure to risk with a cushion of safer, steady income—calls for allocating 60 percent of holdings to stocks and 40 percent to bonds. While it is a bedrock of retirement savers over decades, the approach lost some of its lustre in recent years as its underlying mechanism fell out of whack, with US stocks and bonds moving more in lockstep rather than offsetting each other.

This year, the strategy has come back into its own, performing as advertised even amid violent swings in both stocks and bonds. A US gauge of the 60/40 mode returned some 1.6 percent this year through mid-May, besting the S&P 500 Index's return in the period, and with lower volatility.

A key part of the revival has been the return of the traditional inverse relationship between stocks and bonds. The correlation between US equities and fixed income over the past six months has reached the most negative level since 2021, meaning bonds tend to rise when stocks fall, and vice versa.

"A balanced approach does make sense in the longer term," said Mr Jeff Given, a senior portfolio manager at Manulife Investment Management.

One recent major development has cropped up, though, to threaten that balance.