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60/40 Portfolio Endures as Potential Source of Risk-Adjusted Returns over the Long Term

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By Charles GaffneyCore/Growth Portfolio Manager, Eaton Vance Equity

Boston - The market dislocation of 2022 presents opportunities and underscores the importance of a classic portfolio of 60% stocks and 40% bonds.

We believe the simple, time-tested balanced strategy offers diversification and the potential for risk-adjusted returns, capital appreciation and current income. Long-term investors are best served by an approach that combines fundamental and sustainable principles and eschews the increasingly complex financial products that gain popularity in volatile equity markets.

Stocks have corrected meaningfully, and we believe there are opportunities in pockets of the equity market even while earnings are increasingly squeezed. Active security selection, paired with a sustainable focus, is essential to underpinning your equity and bond allocations.

We have seen valuations contract for both equities and bonds, and we believe that valuations help compensate for ongoing uncertainty in the domestic economy. Treasury yields are at multiyear highs, and credit spreads are at, or near, recessionary levels.

In turbulent and dynamic times, it's critical that your manager holistically and thoroughly research every company from both fundamental and environmental, social and governance (ESG) perspectives.

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The portfolio returns presented reflect hypothetical performance results of various allocations to the chosen asset classes via their respective representative index and does not represent returns that any investor actually attained. It is not representative of the performance that any Eaton Vance strategy has or will achieve. Past performance is not indicative of future results. Historical performance of the index illustrates market trends and does not represent the past or future performance of the fund. Investing involves risk, loss of principal. It is not possible to invest in an index. Diversification cannot ensure a profit or eliminate the risk of loss.
Source: Eaton Vance. U.S. stocks are represented by the S&P 500 Index; U.S. bonds are represented by Bloomberg Barclays U.S. Aggregate Bond Index; Foreign developed-market stocks are represented by the MSCI EAFE Index; Emerging markets stocks are represented by the MSCI emerging-markets Index; International bonds are represented by Bloomberg Barclays Capital Global Aggregate Bond ex U.S. Index; REITs are represented by Dow Jones U.S. Select Real Estate Securities Index; Commodities are represented by Bloomberg Commodity Index.

A time-tested combination of stocks and bonds helps investors to strike an optimal balance between risk and return. Over the last decade, the 60/40 model has delivered a 7.5% annualized return, and a 7.38% annualized return over 20 years, handily outperforming more diversified portfolios. Historical data continues to support this strategy. The 60/40 portfolio emerged, after Nobel prize-winning economist Harry Markowitz developed Modern Portfolio Theory in 1952, encouraging investors to construct portfolios that maximize expected returns based on a given level of market risk. That theory remains relevant today.

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The portfolio returns presented reflect hypothetical performance results of various allocations to the chosen asset classes via their respective representative index and does not represent returns that any investor actually attained. It is not representative of the performance that any Eaton Vance strategy has or will achieve. Past performance is not indicative of future results. Historical performance of the index illustrates market trends and does not represent the past or future performance of the fund. Investing involves risk, loss of principal. It is not possible to invest in an index. Diversification cannot ensure a profit or eliminate the risk of loss.
Source: Eaton Vance. U.S. stocks are represented by the S&P 500 Index; U.S. bonds are represented by Bloomberg Barclays U.S. Aggregate Bond Index; Foreign developed-market stocks are represented by the MSCI EAFE Index; Emerging markets stocks are represented by the MSCI emerging-markets Index; International bonds are represented by Bloomberg Barclays Capital Global Aggregate Bond ex U.S. Index; REITs are represented by Dow Jones U.S. Select Real Estate Securities Index; Commodities are represented by Bloomberg Commodity Index.

A 60/40 portfolio can help long-term investors grow assets over time with the benefit of offering a smoother return experience than most individual asset classes. The traditional portfolio mix can deliver a more consistent source of income which can be used to supplement retirement expenses or for reinvestment to enhance the total return potential.

Bottom line: A 60/40 portfolio enables you to take advantage of diversification, and the potential for risk-adjusted returns, capital appreciation and current income. We believe this approach is the best model for long-term investors, even when asset classes are correlated during extended periods of inflation and rising rates such as 2022. The 60/40 portfolio has endured for decades and has outperformed models with greater diversification. We believe the 60/40 portfolio will continue to deliver solid risk-adjusted returns over time. More than ever, it's essential to trust a manager who embraces fundamental and sustainable principles.

Diversification does not eliminate the risk of loss. It is not possible to invest directly in an index. Past performance is no guarantee of future results.