Key Takeaways:
A former Fidelity president is challenging the investment industry’s most sacred rule, arguing the 60/40 portfolio is a drag on wealth for millions of investors.
Affluent investors should abandon the traditional 60/40 portfolio and allocate 90 percent to stocks, as decades of data show equities consistently outperform bonds, according to former Fidelity Investments president Robert C. Pozen.
"For these affluent investors, a 60-40 portfolio means sacrificing the tremendous upside potential of stocks to avoid temporary losses," Pozen said in a May 22 Wall Street Journal column.
Over the 40 years ending in 2025, a 90/10 portfolio would have turned $100,000 into $5.8 million, more than double the $2.5 million accumulated in a 60/40 portfolio. The outperformance holds even during high inflation, with stocks beating bonds from 1972-1982 and again from 2021-2024.
The argument suggests millions of investors with sufficient non-investment income are mis-allocated, potentially forgoing millions in long-term returns by overweighting bonds in an attempt to hedge against infrequent and temporary stock market declines.
Pozen’s argument is rooted in the stark long-term performance gap between equities and fixed income. During the decade ending Dec. 31, 2025, the S&P 500 delivered an average annual total return of 14.68 percent, crushing the 0.89 percent return from 10-year U.S. Treasury bonds. A $100,000 investment in a 90/10 portfolio would have grown to nearly $356,000 over that period, compared to just $243,000 for a 60/40 mix.
The thesis holds that stocks’ fundamental strengths—claims on corporate assets and earnings power—allow them to outpace inflation over time. Pozen notes that from 1972 to 1982, when inflation averaged over eight percent, the S&P 500’s nominal return of 7.74 percent beat Treasurys’ 5.71 percent. The dynamic was even more pronounced between 2021 and 2024, when stocks returned 13.47 percent while 10-year Treasurys posted a negative 5.35 percent return amid soaring inflation.
The primary argument for a heavy bond allocation is to cushion against stock market volatility. However, Pozen contends that these declines are infrequent and that bonds are an imperfect hedge. The S&P 500 has posted a negative total annual return in only 13 of the past 60 years, and each of the worst downturns (2008, 2002, 1974) was followed by strongly positive returns within two years.
Furthermore, bond returns were positive in only 10 of those 13 negative stock years. The strategy’s weakness was exposed in 2022, when the S&P 500’s total return was a negative 18.04 percent and U.S. Treasurys fell nearly as much. Pozen suggests investors view sharp declines as buying opportunities and treat the 10 percent money-market allocation as an insurance policy for short-term needs.
Pozen’s 90/10 model is a total return strategy that may not suit investors who rely on their portfolio for regular cash flow, a point he concedes. For retirees who dislike selling shares to fund spending, other equity-based income strategies have emerged as an alternative to bonds.
One such strategy is the actively managed covered-call ETF. The Amplify CWP Enhanced Dividend Income ETF (NYSEARCA: DIVO), for example, holds a portfolio of 20-25 large-cap stocks and selectively sells call options against them to generate income. As of April 30, DIVO offered a 4.75 percent distribution rate. While its 11.4 percent annualized five-year return has lagged the S&P 500, its risk-adjusted performance, measured by a Sharpe ratio of 0.70, slightly exceeded that of a traditional 60/40 portfolio over nearly a decade, according to Testfolio.io data.
This article is for informational purposes only and does not constitute investment advice.
