You’ll Be Happier If You’re Realistic – The death of high returns and what can you do about it (60 40 Portfolio Returns)

You’ll Be Happier If You’re Realistic – Death of high returns and what can you do about it

Below are some interesting research pieces and blog posts that caught my attention this week and my thoughts on the topic – this week is about the 60 40 Portfolio Returns and high expectations

hokkaido japan - 60 40 portfolio returns - how realistic are they now?
Shakotan - Hokkaido, Japan. Source: Instagram Profile

Are you chasing the right dreams?

  • One of my most important personal transformations came with reading Seneca, Epictetus and other Stoic writers
  • It took me a couple of years and my quasi round the world cycling trip to experience proper meditation techniques
  • It is easier for me to understand this having witnessed people in Finance making 7-figure salaries but being deeply miserable to take a shortcut and not follow their path
  • In a sense, the “I’ve been there, done that” approach is quite easy from that perspective – but only a fraction of us get to experience wealth / popularity or observe people on the daily basis living such life
  • What I’ve come to respect even more is people who haven’t seen/experienced wealth that choose not to go down that path and work on themselves and their expectations in life (because I’m not sure I would have been mature enough to get there without seeing it first)
  • Set your goals for happiness and ask yourself what material needs are required for happiness

Happiness = Reality - Expectations

  • Cycling the world with everything you need to live in 15 kg panniers was quite a transformative experience after having lived 10+ years in the City of London 
  • You learn how to reset expectation when you don’t know what tomorrow will bring (of course, you can only predict a fraction of things that may happen to you – and you almost never know where you are going to sleep the next night)
  • Ask any cyclist what a long distance travel gave them and they will tell you that it’s been one of the best things they have ever done – because of the way we travel we’re by nature very cautious and since the world is such a beautiful place the Happiness equation can only blow your mind
  • While I like sophistication is certain aspects of life, simplicity is something I aspire to
  • This blog is also a way to simplify one important aspect in life – the path to financial independence

We tell ourselves that if we just get paid more or get promoted, we’ll stop being so miserable at work. Or we dream for months in advance about some vacation to paradise, only to find, once we arrive, that the hotel was not quite as glamorous as the photographs on the website implied. Maybe we do get that promotion or that raise and it does alleviate some old problems—then suddenly there are new ones like jealous co-workers or additional responsibility (The Daily Stoic Newsletter)

High (return) expectations set us up to be disappointed

Back to Investing.

Our rosy expectations set us up to be disappointed. Including, in investing. There has been a lot of debate about the end of the traditional 60% Equities 40% Bonds portfolio that has generated impressive returns. 

This asset mix had a heck of a run, even in a year as crazy as 2020.

A basic 60/40 strategy is up about 8% so far this year, and was down much less than the stock market at the depths of the pandemic-induced sell-off in March. That’s after earning an annual compounded rate of return of 10% since the 1980s (and no losses)

A heck of a run

Cumulative Net Profit at the Moment of Sale on 1,000 USD invested 5 years earlier and kept for the entire period (60% S&P 500 40% US Treasuries Portfolio)
US Treasuries / S&P 500 TR Index. 0.3% fees modelled. Source:

Origins and performance of the 60/40 Portfolio (Bloomberg)

It’s an investing strategy that many trace back almost a century, when a young accountant named Walter Morgan started to become alarmed at the rampant speculation in the booming 1920s stock market.

His solution was what became known as the Wellington Fund, the first “balanced” mutual fund that invested in both stocks and bonds. In the early 1950s, economist Harry Markowitz laid out the math that showed mixing stocks and bonds delivered ideal diversified portfolios for those worried as much about risk as much as return. Eventually the blend of 60% stocks and 40% bonds became close to gospel in the industry, with a wide variety of regular savers and professional investors anchoring retirement plans somewhere around “60/40,” or at least using it as a benchmark against which to compare other strategies

End of an era

JP Morgan has a chart showing how low yields got for the Developed World

Around 90% of developed countries have government bond yields of 1% or less. Almost 40% of these countries have negative yields.

That means 40% of the 60 40 Portfolio Returns will be extremely low (vs. a historical 7.1% return for Government Bonds!)

US Treasuries returned 7.1% since 1980
returns us equities S&p 500 us treasuries 60% 40% portfolio
Holding Period for average net profit calculation on $1,000 Investment is 5 Years (similar to the above chart) Source:

#1 What can you do about it (Portfolio Tweaks)

For large market players there are other options to choose from including Private Equity and Private Debt and generally more diversification. But sophistication comes with additional know-how.

For Retail investors choices are reduced:

  • Financial Samurai, a popular FIRE movement (Financial Independence, Retire Early) blogger, announced the death of the the 4% rule that meant that you can use 4% of your savings to retire e.g. if you have 1m of savings and can live off 40k you can Retire Early
  • While I don’t fully agree with his analysis  that is a bit provocative it is important to revise our expectations in low yield environment (the historical 60 40 Portfolio returns won’t be sustainable in the short/medium term)
  • You can also do tweaks to your long term portfolio and diversify into Inflation Protected Securities (TIPS) and a small chunk of Gold as many alternative to Government Bonds (I have them as part of my Long Term Model Portfolio)
Example of a Long Term Asset Allocation (here 70% / 30%) with Inflation Protection (Gold/TIPS)
Long Term Investing Strategies for Financial Independence - choosing best long term index funds - example of strategic asset allocation 10 year long term investment strategy for retirement with index funds
Example of Long Term Portfolio - Click to read more

... but keep your Bonds

  • While portfolio tweaks are helpful, these may not be the magic bullet you expect
  • But I agree with Ben that you still need to own Bonds. In fact, the re-balancing aspect is probably even more important than the yield component
  • Your Risk Tolerance should still determine the amount of cash allocated to Bonds
  • As for overall portfolio yields it’s more about expectations and has little to do with investment and more with general attitude in life 
  • As with most things in life, the most difficult part if to try to change ourselves  work more on things you can influence and don’t focus on things you can’t. Some meditation may help more than trying to outsmart the market

You will be happier if you’re realistic (Daily Stoic)

“Whenever you are about to start on some activity, remind yourself what the activity is like,” was Epictetus’s advice. “If you go out to bathe, picture what happens at a bathhouse—the people who splash you or jostle you or talk rudely or steal your things. In this way you will be more prepared to start the activity, by telling yourself at the outset, ‘I want to bathe, and I also want to keep my will in harmony with nature.’ Make this your practice in every activity.”

Think about how things really might be in advance. Don’t tell yourself how you want them to be. Don’t lie to yourself as a form of motivation. Be honest. Be clear. Be realistic.

If they end up being better than you expect (as things often can be), then wonderful. Enjoy the treat you’ve set up for yourself. If they end up being anything else? Well, you’re prepared now, aren’t you?

Better to be pleasantly surprised than unpleasantly surprised. Better to be realistic than delusional


That’s the idea.

Our expectation that the modern world will not have any problems is why the so called “first world problems” are so vexing. Isn’t everything supposed to be awesome considering all that we’ve accomplished? People tend to think only about how amazing things are going to be…only to find that reality is more complicated. It is this gap—between what we told ourselves things were going to be like and how they actually are—that is the source of so much unhappiness and misery in people’s lives. It’s the reason that so many of us walk around frustrated rather than grateful and relieved 

#2 What can you do about it (beyond Investment Portfolio)

The second part comes from influencing things you have control over:

  • You can influence your income – and that is, active income (skill up / get a better job / create a side business – why not use the low yields to borrow in order to develop a business that may help people in a COVID-19 Environment?)
  • You can influence your rate of savings – one of the conclusions of a Bloomberg analysis is that we would now need to save more in order to achieve our financial objectives
  • Most of all you can, you can educate yourself on how to start investing and asset allocation that is probably the most important aspect determining the future returns of your investments (fees, count too!)
  • To do my part, I wrote a number of guides to help you getting started – have a look at the tabs below

Total / limited and out of control aspects in Financial Independence, Retire Early Investing

influence things you have control over in investing 60 40 portfolio returns - how realistic are they now?
Source: JP Morgan
Happy Investing!



All information found here, including any ideas, opinions, views, predictions expressed or implied herein, are for informational, entertainment or educational purposes only and do not constitute financial advice. Consider the appropriateness of the information having regard to your objectives, financial situation and needs, and seek professional advice where appropriate. Read our full terms and conditions.


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About Raph Antoine 83 Articles
Raph Antoine is a Portfolio Manager and Institutional Advisor that witnessed first-hand the 2008 Global Financial Crisis and the 2011 European Debt Crisis working for some of the most prestigious names in the financial industry. Raph has experience across multiple asset classes including Fixed Income and Equity products as well as Special Situations and Restructurings in multiple jurisdictions. Raph holds an MSc in Financial Engineering and is a CFA (Chartered Financial Analyst) Charterholder. He usually rides one of his two bikes. Rarely, a Canyon Ultimate CF SLX 8.0 (that is currently in family's attic) and most of the time a Gravel Pinnacle Arkose (his favourite) that he used to Cycle the World.
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