Benz: five-year-old 60/40 portfolios are about three-fourths US stocks

A portfolio that was 60% US stocks and 40% bonds five years ago would now be about three-fourths in US equities, with the remainder in bonds, Christine Benz said in a Morningstar interview published Nov. 12. For many households, she said, the main rebalancing move is to take some risk out of the portfolio.

Benz described rebalancing as comparing a portfolio's allocation today with its target, then trimming higher-risk assets and adding to lower-risk ones. A side benefit right now, she said, is that yields on cash investments and high-quality fixed income are much higher than they were five years ago, so the safer side of the portfolio earns more than it did. She noted that people saving for retirement are likely getting closer to needing the money while their portfolios have grown more risky.

For advisors, the work is the comparison itself: measuring current weights against the target and documenting the trims that pull an equity-heavy portfolio back toward its stated allocation, with proceeds landing in cash or high-quality bonds. Benz's assumption is the ordinary market cycle in which higher-risk assets grow into a larger share over the years; she noted the opposite case, where a bad run for equities leaves rebalancing meaning a top-up of depreciated equity exposure rather than a trim.

Her framing puts the year-end meeting in front of the arithmetic: what the target is, where the portfolio actually sits after five years of US equity returns, and what the trade back costs in taxes and turnover. Advisors whose clients hold the same allocation inside tax-deferred accounts have more room to act than those working in taxable ones.