Inflation and rising interest rates have stressed the 60/40 investment portfolio strategy — 'but it's not dead,' says financial advisor

cnbc.com:

The 60/40 portfolio is under fire.

But should investors sound the death knell for the classic investment strategy? Financial advisors and experts don't think so — but it likely needs a tweak.

«It's stressed but it's not dead,» said Allan Roth, a certified financial planner based in Colorado Springs, Colorado.

More from Personal Finance:4 ways to save money at the pumpEducation Department to cancel student debt for some 200,000 borrowersTax return backlog is still 'crushing the IRS'

The strategy allocates 60% to stocks and 40% to bonds — a traditional portfolio that carries a moderate level of risk.

More generally, «60/40» is a shorthand for the broader theme of investment diversification. The thinking is: When stocks (the growth engine of a portfolio) do poorly, bonds serve as a ballast since they often don't move in tandem.

The classic 60/40 mix encompasses U.S. stocks and investment-grade bonds (like U.S. Treasury bonds and high-quality corporate debt), said Amy Arnott, a portfolio strategist for Morningstar.

Until recently, the combination was tough to beat. Investors with a basic 60/40 mix got higher returns over every trailing three-year period from mid-2009 to December 2021, relative to those with more complex strategies, according to a recent analysis by Arnott.

Low interest rates and below-average inflation buoyed stocks and bonds. But market conditions have fundamentally changed: Interest rates are rising and inflation is at a 40-year high.

U.S. stocks have responded by plunging into a bear market, while bonds have also sunk to a degree unseen in many years.

As a result, the 60/40 portfolio is struggling: It was down 17.6% this year through June 22, according to Arnott.

If it holds, that performance would rank