BRANDED CONTENT
How to improve your investment returns with a balanced approach
A 60/40 stock-bond strategy could offer stability through market cycles, potentially providing attractive returns at lower risk than investing in stocks alone, say experts at PIMCO
A 60/40 investment strategy balances stocks and bonds, potentially offering stability and managing risk for smoother returns over time, say experts at PIMCO. PHOTO: PIMCO
Follow topic:
Are you waiting for the perfect moment to buy low and sell high? Think twice.
Research by investment management firm PIMCO shows that attempting to time the market could actually hurt rather than help investors, potentially reducing returns over the long run. Conversely, a portfolio allocation of 60 per cent to stocks and 40 per cent to bonds could offer an attractive balance of risk and return over the long term, generating greater stability through diversification.
According to experts at PIMCO, a 60/40 investment strategy can cater to the needs of a wide range of investors, whether your objectives include generating regular passive income, funding your children’s education, or accumulating wealth for retirement.
Avoid the timing trap
A 60/40 stock-bond allocation can help investors counteract common behavioural biases, such as panic selling of assets during market downturns and overconfidence that may lead investors to buy when recent returns are high.
It is nearly impossible to consistently predict what the markets will do next, and guessing wrong could dramatically impact your results. Investors who try to time their moves in and out of the market tend to see performance gaps compared to long-term investors who remain invested.
Consider this: If you missed the five best performance days of the stock market (for example, the MSCI All Country World Index) for the past 20 years, ending June 2024, you would have earned about 38.6 per cent less than someone who was fully invested the whole time. A similar trend can be seen with bond investing.
Figure 1: Trying to time the market has a cost
Source: Bloomberg. Data as of June 30, 2024. Past performance is not indicative of future performance and no guarantee is being made that similar returns will be achieved in the future.
Resilience through diversification
Stocks typically offer higher returns than bonds but are more volatile and risky, whereas bonds generally provide more muted returns than stocks and are less risky for the long-term investor. By combining these assets, a 60/40 portfolio has a long-term track record of generating stable and compelling equity-like returns, with less risk than owning stocks alone and greater return potential than owning bonds alone.
Figure 2: Bonds potentially act as a key diversifier
Past performance is not indicative of future performance and no guarantee is being made that similar returns will be achieved in the future. All periods longer than one year are annualised. Source: PIMCO and Bloomberg. Data is for the period from 1988 through 2023, as of Dec 31, 2023. For illustrative purposes only. Equities represented by MSCI ACWI Index. Bonds represented by Bloomberg US Aggregate Bond Index. Volatility measured by annualised standard deviation of returns. It is not possible to invest directly in an unmanaged index.
Over the past two decades, stocks and bonds have generally shown a negative correlation, meaning that when stocks have fallen, bonds have typically risen. This dynamic helps stabilise portfolios during periods of volatility and provides significant diversification benefits.
Put simply, a 60/40 approach represents an optimal blend, providing consistency across market cycles, and could serve as the core allocation in an investment portfolio.
Why choose a 60/40 strategy now?
A balanced 60/40 portfolio could be especially beneficial now and in the years ahead. The global economy is likely to see ongoing uncertainty, geopolitical risk, and more volatile business cycles. Global growth may disappoint over the next five years and experts at PIMCO expect investment returns across asset classes and geographies to be more differentiated in this new era.
Against this backdrop, an active, global and balanced investing approach could position portfolios well for a broad set of macroeconomic and market outcomes.
Introducing PIMCO’s Balanced Income and Growth (P-BIG) Fund
P-BIG is an active 60/40 stock-bond investment strategy that is high-quality, global and diversified, avoiding style biases and single sector or country concentrations to prudently manage risk. It is designed to be a core allocation in investors’ portfolios through all market environments.
The strategy is enhanced by adding modest tactical flexibility to the 60/40 allocation, allowing minor adjustments to P-BIG’s exposures based on PIMCO’s macroeconomic views. With this, the investment management firm believes this could reduce risk and improve returns in a variety of different market environments.
Amid today’s elevated uncertainty, PIMCO’s P-BIG may be well positioned to serve as a source of stability by generating attractive income and total return through all stages of the economic cycle.
Disclaimer
This advertisement or publication has not been reviewed by the Monetary Authority of Singapore.
Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and low interest rate environments increase this risk. Reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed.
Investment involves risk including possible loss of the principal amount invested. PIMCO Funds: Global Investors Series plc is an open-ended investment company with variable capital and with segregated liability between Funds incorporated on December 10, 1997 and is authorised in Ireland by the Central Bank as an undertaking for collective investment in transferable securities pursuant to the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations, 2011 (S.I. No. 352 of 2011) as amended. PIMCO Funds: Global Investors Series plc has appointed PIMCO Asia Ptd Ltd as the Singapore Representative. The Fund may use or invest in financial derivative instruments and be subject to various risks (including for e.g. liquidity risk, interest rate risk, market risk, credit risk and management risk etc.) associated with such investments in financial derivative instruments. The Fund’s use of, or investment in, financial derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. Participation in the markets for financial derivative instruments involves investment risks and transaction costs to which the Fund may not be subject if such strategies are not used. You should carefully consider these risks prior to making an investment in the Fund. Investors should consider the investment objectives, risks, charges and expenses of the funds carefully before investing. This and other information is contained in the Fund’s Singapore Prospectus which is available and can be obtained from our website www.pimco.com.sg or by contacting the Singapore Representative or a distributor of the Fund. Prospective investors should read the Fund's Singapore Prospectus before deciding whether to subscribe for or purchase shares in any of the Funds. Investors may also wish to seek advice from a financial adviser before making a commitment to invest and in the event you choose not to seek advice, you should consider whether the investment is suitable for you. The value of shares of the Fund and the income accruing to them, if any, may fall or rise. The Funds typically offer different share classes, which are subject to different fees and expenses (which may affect performance), have different minimum investment requirements and are entitled to different services. Unless otherwise stated in the prospectus, the Fund referenced in this material is not managed against a particular benchmark or index, and any reference to a particular benchmark or index in this material is made solely for risk or performance comparison purposes.
Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Outlook and strategies are subject to change without notice.
Issued in Singapore by PIMCO Asia Pte Ltd (Registration No 199804652K). All investments contain risks and may lose value. PIMCO is a trademark of Allianz Asset Management of America LLC in the United States and throughout the world. ©2024, PIMCO.
