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Investing in Stock and Bonds: An Alternative to Strategic Allocations

Photo by RDNE Stock Project

We discuss an easy-to-execute strategy for investing in stocks and bonds that is an alternative to the popular 60-40 strategic allocation.

In the last three bear markets, the dot-com, GFC, and in 2022, the 60-40 allocation in stocks and bonds suffered large losses. The following is a backtest of this strategic allocation in the S&P 500 and S&P US Treasury Bond total return indexes from January 2, 1992, to June 26, 2024, with annual rebalancing.


This popular strategic allocation fell about 15% in the dot-com bear market from 2000 to 2002, then plunged 17.3% in 2008, and recently dropped 15.2% in the 2022 bear market. We propose an alternative to this popular strategic allocation, which produced the following backtest results:


The annualized return increased from 8.4% to 9.9%; the maximum drawdown fell significantly from 31.7% to 19.5%; and the Sharpe ratio rose from 0.85 to 0.90. The total return increased from 1,540% to 2,454%, and that offered plenty of margin for covering transactions and other costs over a reasonable investing period.

The strategy and a backtest with popular ETFs for stocks and bonds are detailed below. The advantage of this strategy is that it does not require fancy calculations; the indicators are already available on popular investing sites. It also requires only monthly rebalancing.

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Disclaimer: No part of the analysis in this blog constitutes a trade recommendation. The past performance of any trading system or methodology is not necessarily indicative of future results. Read the full disclaimer here.

Charting and backtesting program: Amibroker. Data provider: Norgate Data

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