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Rekenthaler Report

What is the Neutral Portfolio?

Balanced funds are the standard, but with little justification.

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Investing by Habit
The bold favor stocks and the cautious bonds. Those in the middle own balanced funds: 60% stocks and 40% bonds. Vanguard’s STAR Fund (VGSTX), designed for one-stop shoppers, carries the 60/40 allocation, as (largely) does the company’s Managed Allocation Fund. That is also the average position for the industry’s target-date 2030 funds, which serve those who are one decade away from retirement.

The 60/40 arrangement is entirely arbitrary. If the approach ever was supported by an investment argument, that explanation was lost long ago. Portfolio managers create 60/40 portfolios for moderate investors because 60/40 portfolios are what moderate investors receive. Ask no questions, receive no lies.

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John Rekenthaler does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.