There are good times ahead for the beleaguered 60/40 portfolio, according to a new report from JPMorgan. The firm is forecasting a 7.2% annual return for the portfolio of 60% stocks and 40% bonds over the next 10 to 15 years, up from its 4.3% forecast last year. “The painful slump in stock and bond markets in 2022 may not yet be over, but over the longer term we see this year’s turmoil creating the most attractive investment opportunities we’ve seen in a decade,” John Bilton, JPMorgan Asset Management’s head of global multi-asset strategy, said in a statement. The 60/40 strategy, known as a balanced portfolio, has had a terrible year amid falling bond prices and stock market volatility. One measure of the portfolio’s performance is the iShares Core Growth Allocation ETF , which has a target fixed allocation of 60/40. The ETF is down more than 15% this year, as of Friday’s close. In the near term, investors will be grappling with a recession or at least several quarters of below-trend growth, Bilton said in JPMorgan’s 2023 Long-Term Capital Allocations Market Assumptions report. While inflation is still running hot, the firm expects it to subside over the next two years to reach 2.6%. As policy rates normalize, bonds no longer look like “serial losers,” Bilton wrote. Projected equity returns will rise sharply, he said. “Margins will likely recede from today’s levels but not reverse completely to their long-term average, and valuations present an attractive entry point,” Bilton said. “We would remind those shouldering losses from the last year that investors able to avoid selling during drops tend to be rewarded in the longer run, and that the sharpest gains are often banked early in the cycle as markets first turn.”
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