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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.

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