Welcome to this very special follow-up to Episode 19 – which was all about an edge-of-your-seat subject: Bonds. This time out The Retirement Equals Freedom Podcast is building on that theme by taking an unvarnished look at the 60/40 portfolio.

For decades, explains FSR Wealth Strategies Founder and Host Josh Bretl, it’s provided retirees a reliable mix of 60% equities and 40% bonds to protect against market downturns.

Not so much anymore. Due to shifting interest rates and other factors, that gold standard formula is no longer a given. The landscape has changed and there’s a new normal, which Josh is here to explain (with input from Co-Host Dave Schmidt that most likely be helpful to your financial decision-making).

You’ll learn why the 60/40 formula has worked in the past and based on what kinds of research the common wisdom has been updated to reflect new risks associated with bond holdings. Understanding the purpose of bonds in your mix of investments is critical to considering alternatives (ideally with the help of a qualified advisor).

Even though there’s no predicting the future for certain, there are ways to protect your retirement nest egg. It starts with education and sound advice!

This episode was fueled by Cometeer Coffee, both iced and hot!

Click here to learn more about or listen to previous episodes of The Retirement Equals Freedom Podcast. Don’t forget to sign up for the show’s new weekly email at this link and definitely come join the conversation at our new private Facebook group, which you can find here.

Click here to explore the services that FSR Wealth Strategies offers and schedule a discovery call with one of the team’s CPAs. When it comes to living your best life, it’s never too early to get started!

2022 has been a terrible year for people

with the 60/40 portfolio.

Really?

Awful year.

40% of your portfolio in bonds is not as safe

historically as it used to be.

60/40 portfolio isn't dead, but right now there may be other

options that you need to look at for your particular portfolio.

Bonds, baby.

This time around, we're taking a look at the 60/40 portfolio.

Is it dead?

Well for decades, the 60/40 portfolio has provided

retirees a reliable mix of 60% equities and 40% bonds.

And that's worked really well to protect against

market downturns.

But that may not be the case anymore.

Understanding the purpose of bonds in your mix of

investments is critical to considering alternatives.

This is the Retirement Equals Freedom Podcast.

Your host, Josh Bretl, is the owner of FSR Wealth Strategies.

For the last few decades, he's been helping fine folks like

you thrive in their retirement.

And me I'm Dave.

Josh's longtime friend, co-host, and fan of breakfast for dinner.

So now, let me, let you, let me end this introduction,

so you can enjoy the show about bonds once again.

FSR Wealth Management is a registered investment advisor

located in Elmhurst, Illinois.

Information and opinions contained in this audio

have been arrived at by FSR Wealth advisors.

All information herein is for informational purposes

and should not be construed as investment advice.

It does not constitute an offer, a solicitation or recommendation

to purchase any security.

FSR is not providing legal, tax, accounting, or financial

planning advice in this audio.

These views are as of the date of this publication

and are subject to change.

Once again, Dave, welcome to the Retirement

Equals Freedom Podcast.

We haven't said the episode number in a while.

We're not supposed to.

Oh.

Just in case something urgent comes up and

we got to do a surprise podcast.

This is episode 20.

Oh, that hurts.

Can't believe we're doing 20 episodes already.

It feels like three.

Well, for those that were listening

to the last episode, and we're going to follow up

on last week's episode.

I mean, why wouldn't we follow up?

I couldn't put you to sleep with

one week of bond talk.

We're going to go to week two of bonds.

Here's the thing.

We have people listening to the episode before

it's even released.

They are so excited.

About bonds, man.

So we are getting older, you and I.

Says who?

Says my eyesight and my newfound realization

that I can't do amusement park rides anymore.

Okay.

Is that your waistline, or is that you're just getting older?

No, the waistline's been there for a while.

As a child, I got motion sick all the time.

I could get carsick in a moment's notice.

But amusement park rides never bothered me.

Going to Great America, anything like that, loved it.

Loved everything about So, over the weekend, we took

the kids to Santa's Village in East Dundee, Illinois.

We've been promising them that for years.

They're almost a little old for it.

But we decided to ride some rides, and there is

nothing big in this park.

Correct.

When we first walked in, they have

the old pirate ship that goes back and forth and-

oh, yeah.

-just in a big circle almost.

It doesn't go upside down.

It's a big, giant swing, practically.

It makes me vomit just looking at it.

Well, Zach didn't want to do it.

So he and I went to the bathroom and got our bearings

while Missy and the other two went on this thing.

It looked like fun to me.

I was like, "Oh, looks like fun.

I like that stuff."

the next ride, they have this balloon that takes you up in

the air and spins you around.

It's a glorified merry-go-round up in the

air a little bit, okay?

I know what you're talking about.

I'm on there, and I think I'm sitting with Alex.

I don't remember who I was sitting with.

But I'm sitting there going, "Oh my God, I'm

not going to make it.

This is not good."

We knew the ride was 30 seconds.

It was going to be fine.

We go on throughout the day and nothing else really bothered me.

There wasn't anything else major that we did.

Actually, I went on a rollercoaster, their

only real rollercoaster.

You're fine.

Totally fine.

So we finished the day, and we're like, "All right,

everybody can pick one more ride that you want to do."

Maggie and Zach wanted to do that balloon thing again.

Alex wanted to go back on that ship that goes upside down and

that swings back and forth.

I said to Miss, I go, "I'll take Alex in the ship.

I don't want to get back on those balloons."

Oh, God.

She goes, "Are you sure you want to do that?"

I was like, "Yeah, I can handle that better that I

can handle the balloons."

So Alex and I get on this ship, and I'm feeling confident.

I'm having a great time.

Alex and I are talking about stuff.

Sure.

Like, "I got this."

Yeah, it's cool.

And it starts going, and within the first 10 seconds, I made

eye contact with the kid sitting across from me, and I was

like, "Dude, I may cover you."

I haven't felt that bad, that motion sick, in a long time.

About halfway through the ride, I'm focusing on just

everything I know how to stop motion sickness, and-

Oh, no.

-it was rough.

It was a rough one.

It took me a couple hours for my stomach to come back to normal.

So-

it sucks getting older, man.

Yeah.

Yeah.

That one is a ride that I've done over and over

and over again and-

Oh, Josh.

Yeah.

See, you know my motto.

It's safer to take Dave out to lunch than go

on a rollercoaster.

It's true.

It's true.

That's my motto.

Yeah.

[singing].

Erin's just sitting here watching us dance to music

in her headphones, and she has no idea what's going on.

She has no idea.

Okay.

Today's card, I chose it, for the Get to Know

Josh and Dave segment.

This is from the card deck, WTF.

I think you know what that stands for.

Question, Josh.

What's the most ridiculous fact that you know?

I also love the fact that you chose

these decks of cards, and the deck of card you chose

for our podcast is the WTF.

WTF.

I have others in our bag, but you know Erin.

She's a little spicy.

She's like, "Choose that one, Dave."

So I did.

What's the most obscure fact that I know?

The most ridiculous fact you know.

The most ridiculous fact that I know?

Mm-hmm.

I am not a good fact person, but here's-

Oh.

Because I was telling Erin, I was bragging about you earlier

when you were out getting us lunch, how you retain

knowledge from grade school.

So I thought-

it kind of comes back to me.

But you asked this question.

It's kind of a random question.

So somebody used to ask me this, something unique about you or

a random fact about yourself.

What I used to always say is growing up as a

kid-there's five of us in my family, my mom, my dad, my

brother, my sister, and I.

And other than my mother, we all had scars on our forehead

in the exact same spot that go in different directions.

What?

Mm-hmm.

Kind of random.

You were hit in the head with a-

I ran into a door knob when I was a child.

Oh, I tried to give you more credit for-

I hit my brother over the head

with a hockey stick.

Oh.

But random facts.

I'm-

I think we can give them a fact.

Here's a random fact.

I remember this from Mr.

Power in fourth or fifth grade science class.

No relation to Melissa powers?

Nope.

No.

Okay.

My wife has an S at the end of her maiden name.

Yes.

Yes.

He has no S.

Got it, got it.

He was a fourth or fifth grade teacher.

I actually had him for both.

He actually passed away about a year ago or so.

But I remember him saying, "If you're measuring water

or a liquid and there's that little bubble that sits on

the top of the liquid, the name of that bubble is"

Now, I can't remember it.

I want to say meniscus, but that's in your knee.

So I forget what the name of the bubble is.

Oh, no.

Wow.

Uh-huh.

Yep.

This topic's a giant fail.

Man.

All right.

Maybe I should just go?

Yeah, go ahead.

What's the most random fact you know.

I won a contest in third grade for knowing

and spelling the longest word in the English dictionary.

Care to know it?

Yeah.

I'll even spell it blindfolded, too, so you

guys don't think I'm cheating.

The word is pneumonoultramicroscopicsilicovolcanoconiosis,

okay?

It is spelled P-N-E-U-M-O-N-O-U-L-T-R-A-you

following along?

M-I-C-R-O-S-C-O-P-I-C-S-I-L-I-C-O-V-O-L-C-A-N-O-C-O-N-I-O-S-I-S.

Pneumonoultramicroscopicsilicovolcanoconiosis.

It's a lung cancer, I think, if you guys care to know

what the word actually means.

We take this deeper and deeper.

Leslie, when she has to research that for the show notes and

she's going to try and type that out, Leslie, I am so sorry.

Dave Schmidt:

Pneumonoultramicroscopicsilicovolcanoconiosis.

Dave Schmidt:

Yeah.

Dave Schmidt:

I used to be smart, believe it or not.

Dave Schmidt:

Yeah.

Dave Schmidt:

My mom made me read books and stuff.

Dave Schmidt:

All right, Josh, let's talk about the 60/40 thing because, I

Dave Schmidt:

don't know, man, can it get any better than the last episode?

Dave Schmidt:

Why?

Dave Schmidt:

Because they're bonds, baby.

Dave Schmidt:

Bonds.

60/40 portfolio.

I have a lot of people that come into our office and, even if I

see them at seminars, they'll say, "Well, I'm 50/50, I'm

60/40, I'm 20/80," or whatever it might be, When you see a

number in front of a portfolio, the first number is always

about the percentage that's equity-based and the second

number is the amount that's fixed income or bond-based.

So the 60/40 portfolio for a lot of people is considered

the blue chip portfolio.

Everyone says, "Well, we're going to compare

it to a 60/40 portfolio."

So you got 60% equities and 40% fixed income.

Make sense so far?

Makes sense.

I'm typing, "What does blue chip mean," because

you said blue chip.

I don't know what the-

It's not the casino in Indiana.

It's not.

It's the gold standard.

Oh, the highest quality.

Okay.

Okay.

Got it.

Yeah.

Portfolio, if you will.

Now, as we talked in our last podcast, 40%

of 40% of your portfolio in bonds is not as safe

historically as it used to be.

It's not in the same way.

Lincoln Financial Group, Lincoln's one of the giant

insurance companies out there, every six months, they

put out a new report, a lot of details and stuff in it.

They will interview some of the largest money managers

in the country, and they'll average them out and do some

different things, and they'll compare it to historics.

Now, historically, according to the Lincoln Report, from

1976 through 2021, the 60/40 portfolio, the 60% being

equities, 40% being the US Aggregate Bond Index,

averaged 10.9%, which is huge.

That's great.

10.9% is an unbelievable rate of return.

People would be ecstatic to have that average.

But if you remember from our last episode, we talked

about how bonds operate in an inverse relationship to

interest rates, and the purpose of that 40% in that portfolio

is to level out some of the ups and downs, all right?

In a down year, your equity percentage at 60% is going

to fall drastically, and as you rebalance it, because

rebalancing is a key thing, that 40% will hold steady for you and

pay you a decent interest rate.

Now, I'm holding my hands up to Dave as I'm mimicking these

motions, and I think that just helps me talk because

I realize no one's going to see this on the podcast, but-

Don't doubt me.

So the bonds, historically, the purpose

of that 40% was in that downside protection.

Well, 2022 has been a terrible year for people

with the 60/40 portfolio.

Really?

Awful year.

We've been talking about this for a while.

People have been talking about our equity is overvalued.

For the last eight years, we've been hearing from people, "The

stock market's overvalued.

I'm not putting any more money in stocks.

I'm not going to put any more money in stocks."

Well, they weren't talking the same thing about the

bond portfolio, their bond percentage, and we were

screaming this from the rooftop.

This is the year it came into fruition because

what's happening is you have seen interest rates rise.

For the first time, really, since the early '80s, we've

seen a significant rise in interest rates, and the value

of bonds has fallen drastically.

So the US Aggregate Bond Index year to date is down 8.79%.

We're recording this on August 15th, so it could change

depending when you hear this.

But 8.79% decrease in the US Aggregate Bond Index, that's

the safe part of the portfolio.

Oh, wow.

The equity portfolio, the S&P

500 portfolio, year to date is down 10.47.

So there's really no safe side to that.

There hasn't been a safety net on either side of

those two portfolios.

In fact, if we were to go backwards a few months,

those two numbers are actually even worse.

So what we're looking at is the purpose of that 40% in the 60/40

portfolio was completely gone.

It just didn't serve a purpose.

What we talked about in the last episode was you should have a

bond alternative that you can put for, if not all, some of

that This is what happens here.

If we had that bond alternative in here, we wouldn't be down

that part of the portfolio.

That purpose of that part of the portfolio, we could have avoided

that negative loss on it.

Would there still potentially have been a

negative loss but maybe not-

the equity percentage?

I mean, people are comfortable with stocks going up and down.

People are totally fine with that.

It doesn't feel good, but they understand it.

When bonds lose money, people lose their mind.

They go, "How did that happen?

It wasn't supposed to happen."

So it's that ability to say, "Hey, this part of

our portfolio we can do something different with."

Okay.

Okay?

And I'm going to feel that way for a couple years, I

think, for as long as we see rising interest rates.

I'm going to go back to that Lincoln article that

I talked about before.

And we will post these in the show notes.

Yes.

I'll post a copy to this, this Lincoln Financial Group article.

They interviewed four of the biggest money managers.

They interviewed J.P.

Morgan, Goldman Sachs, BlackRock and State Street.

Actually, five.

Dave Schmidt was the fifth.

Oh, you're not listed in here.

Oh, funny.

Yeah.

Well, I like to be anonymous in these things here.

So they always talk their capital market

expectations, what they expect to see over the

next 10 years, and they release this to the public.

And they predict on an average between the four of

them, they didn't count you again, I'm sorry, Dave, of

4.9% over the next 10 years.

Negative?

No, it's a positive.

Oh, positive.

Okay.

But that's a lot of risk to take earning 4.9%.

I see.

It's something that has to be taken

into consideration.

They're not the only ones that are looking-hey, things

are going to be a little bit different going forward than

they were for the last 20, 30 years, and a lot of it has to do

with how big that bond section is inside people's portfolios.

So is the 60/40 portfolio dead?

No, it's not dead.

It will come back, and as interest rates rise, there

will be a time where we'll be telling clients, "Hey,

we want to put money back in the 60/40 portfolio."

Now just doesn't happen to be that time.

Is this something you should just ride out?

Probably not.

Depends on your overall situation.

But this is something that you could address and you

can do something about.

So the 60/40 portfolio isn't dead, but right now there

may be other options that you need to look at for

your particular portfolio.

Should they talk to that fifth money manager

on that list for advice?

Yeah.

That'd be a great idea.

I mean, look, just saying.

I can advise you on lots of things, as you well know.

Yep.

Taking your advice is my favorite thing in the world.

So why do I bring up the 60/40 portfolio beside it being a

normal thing people understand?

Because, as people get older, they traditionally are going

to try and add bonds to their portfolio to reduce risk.

And a lot of times they'll say, "Hey, we're going to

go from 80/20 to 60/40, we're going to go from 60/40

to 40/60," and they just keep adding those bonds.

Retirees especially need to realize that in today's

environment their risk may not be reduced as much as they

think it is, and especially if you're spending money, if

you're drawing out on those bonds, now is a time more than

ever that you have to realize how much risk you're actually

taking in that portfolio with that amount of bonds.

As we've talked about in prior episodes, there are ways to

quantify that amount of risk.

So if you think bonds are riveting, wait till we dig

into the how you quantify risk.

Oh.

I can't contain it.

I can't.

It's kind of fun.

We talked in the last episode how you collect

baseball cards and the back of the baseball cards had

the players' statistics.

Mm-hmm.

Well, any investment is like a baseball player.

It's got statistics on the back of it, and we

can find all that stuff.

Hashtag tax nerd.

Not necessarily tax-related,

but it is nerd-related.

You asked me for my random topics of random facts.

I guess this podcast is just a giant Josh

spits out random facts.

Josh spits out some random facts.

Wait till my kids sing that one.

Oh.

Dave relates to retirees, yeah.

Oh, my favorite part.

You know, Josh, we're talking about this

60/40 method, man, and I can relate to this a little bit.

This one bothers me or scares me a little bit.

Does it?

Okay, go ahead.

Going to revert back to episode

six of the Retirement Equals Freedom Podcast.

We're not putting numbers on these episodes, Dave.

Oh, this one is already in the past,

so there's a number on it.

Oh, okay.

That episode was titled You Need a Budget.

Erin, you remember that one?

You Need a Budget.

In that episode, there was the infamous-remember, my mom,

Becks, she pulled up the old document, the official notarized

document that was Josh's, quote-unquote, Dave budget.

As I get older, I adjusted.

It's no longer 2010.

I adjust my 60/40 budget to fit my old age now, right?

I no longer need you to pay off my teachers like you did.

I had that budgeted at 50 bucks a month back

when we were younger.

You just don't go to the movies with me anymore.

You just gave up on that.

So I can take some of that money and allocate it, is that a good

word, towards things that are more relevant to my lifestyle

now, like food and beverage and swag for the podcast and your

client events that I go to for the free pizza and free food.

So I can relate to this whole, "Let's adjust the

60/40 ratio as we age."

Or maybe find alternatives in there.

Yeah.

Like Medieval Times budget.

Oh, yeah.

That was a good time.

Okay.

Let's see where I can take this to.

You want to jingle yourself out of this one?

[singing].

Insert the Full House music.

Yeah.

Erin's not going to like that you

brought her into that, but-

Well, she's here and she's in it to win it.

I do like how you were thinking about your needs

changing as your life went on, but, like a retiree, your

needs have changed and you are adjusting your Dave budget,

your mother would be so proud, like the 60/40 portfolio.

You had this great portfolio of me buying you laser tag and

movies and all that fun stuff.

All that stuff.

Yep.

But it's not as valuable anymore-

No.

-because I don't know who the 40 was

in your relationship, but your needs have changed.

Your life has changed.

The market itself has changed.

So you are now adjusting.

I am a much wiser version of myself.

I mean, I really haven't changed that much, but-

I feel a lot more sorry for the people

that are in the 60/40 portfolio than for you.

Why?

I don't know.

Oh, you just do?

Yeah, I do.

Are you trying to say that my

life is pretty simple?

I think we still treat you pretty good.

Yeah, you do.

Unlike those bonds, I think you are

still treated pretty well.

Oh, man.

I can't complain.

No, I see your relation there, having spent

a lot of time with you.

But I'm glad you're making adjustments, and

Becks would be happy.

Look, man, you got to stay on

your toes, you retirees.

You always got to be adjusting that ratio.

I have no idea what I'm talking about.

Do I sound like I do?

You're going to be an advisor before you know it.

So-are you jiggling your Cometeer coffee around?

It's just empty.

I'm trying to say, " Can someone make me a new cup here?

It has really grown on me.

I've really enjoyed the Cometeer.

In fact, I don't order coffee out much anymore

and just get my Cometeer.

Told you, man.

It's worth it.

So, Dave, as we wrap this episode up, I think we've

been talking a lot about the Retirement Equals Freedom email

club at fsrwealth.com/podcast, and we haven't talked about

the Facebook group in a while.

Oh.

Let's get our Facebook group more active here.

So if you look for Retirement Equals Freedom in the

Facebook world, you'll find our group where Dave puts

all sorts of fun pictures and topics and different

things from the podcast.

Josh, it may be news to you, but I don't

do a lot during the day, so I can spend time on Facebook

posting pictures of ALF.

ALF.

That was a good one.

And my haikus.

Erin, can I ask you a question?

If I were to add another segment called Dave Recites

a Haiku, would you be in?

Okay.

Josh?

I don't like that segment.

No?

No.

Why?

Haikus.

Man, you're not very artsy.

I get it.

No.

Cool.

I know.

I like bonds.

All right, friends.

We'll see you in the Facebook group.

And, Deb, if you're listening, I know you

are, we want to say bye.

Bye.