Specialty · Personal Investing · Friday, May 22

You’re Probably Overinvested in Bonds

Sixty years of return data say a 90/10 stocks-and-cash portfolio crushed the 60/40 by almost 3x over 40 years — including through every modern inflation regime. The case against owning long-duration bonds, and what we use instead.

WSJ Op-Ed · Reframed for the CW book

Friday’s Wall Street Journal published one of the more provocative pieces I’ve read in years: the argument that the 60/40 portfolio is dead, and that long-only investors should run a 90/10 portfolio — 90% S&P 500, 10% money market — instead.

The data is hard to argue with. Over the 10 years ending December 31, 2025, the S&P 500 returned 14.68% annually with dividends reinvested. The 10-year Treasury returned 0.89%. Over 40 years, $100,000 in a 90/10 portfolio compounded to $5.8 million. The same $100,000 in a 60/40 portfolio became $2.5 million.

And critically, stocks have beaten bonds during every recent bout of high inflation. From 1972 to 1982, when annual inflation averaged over 8%, the S&P 500 returned 7.74% annually. The 10-year Treasury returned 5.71%. From 2021 to 2024, S&P returned 13.47% annually. The 10-year Treasury returned negative 5.35%.

Why The Old Math Breaks

The 60/40 portfolio was designed for a world where bond yields were structurally falling. That trade ran from 1982 to 2020, and every dollar in long-duration Treasuries got the same return profile that stocks got, plus a hedge during equity drawdowns. That world is over.

Interest rates are normalizing, neither political party has the will to reform Medicare or Social Security, and the U.S. government will have to bail itself out by issuing more debt at higher rates. Higher rates hurt stocks too — but successful companies can raise prices, increase revenue, and control costs. Bonds can’t. They’re fixed.

What We Actually Do At Capital Wealth

I read this op-ed and I agreed with about 80% of it. The piece is right that bonds are no longer the diversifier they used to be. It’s right that an aggressive equity tilt has beaten the conservative mix over essentially every multi-decade window. And it’s right that fees compound against you — a 1% advisory fee on a 60/40 book costs more in real terms than most people realize.

The 20% I push back on: pure 90/10 with no defense at all is not the right answer for most clients. Volatility is real. The S&P 500 was negative in 13 of the last 60 years. Drawdowns in 2008, 2002, and 1974 were severe and lasted multiple years. If you needed to draw down during one of those periods, you sold equities at the worst possible time.

That’s why our four-tier Aggressive book and Halal-compatible books are 99.5% invested with a 0.5% cash buffer in SGOV for operational reserves — not because cash is alpha, but because we always want to be in a position to rebalance into a drawdown rather than out of it.

We use Treasuries selectively where they make tax sense — in dividend-tier accounts and for clients in the top tax bracket who can’t shield ordinary income elsewhere. We never own them as “diversifier.” And we own gold (IAU) as the actual hedge that has been working all year through every bond selloff.

The Bigger Point

The bigger lesson from the WSJ piece is one we’ve been preaching for years: most retirement plans are over-allocated to bonds. Especially CalSTRS and CalPERS members, who already have a defined-benefit pension producing fixed-income-like cash flows. Loading up the 403(b) or supplemental savings with more bonds is duplication, not diversification.

If your supplemental retirement savings are 60/40 right now, we should talk. The answer isn’t 90/10 — but it’s probably closer to 90/10 than 60/40.

Book Impact · What It Means For The Portfolios

The 90/10 thesis dovetails with our CFP-grounded portfolio construction: every CW Aggressive tier is 99.5% invested with a 0.5% SGOV operational reserve. Bond sleeves are half the size of what the CFP textbook recommends — deliberately. For pension-eligible clients (CalSTRS, CalPERS, LAPP), the pension itself is the fixed-income wedge. Doubling up in the brokerage doesn’t add diversification — it adds drag.

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