60/40 Portfolio Backtest

At a glance	60/40
Holdings	SPY 60% / BND 40%
What BND holds	US investment-grade bonds, roughly 3,600 issues
Expense ratios	SPY 0.09%, BND 0.03%
Rebalancing	Back to 60/40 on the first trading day of each year

At a glance

60/40

Holdings

SPY 60% / BND 40%

What BND holds

US investment-grade bonds, roughly 3,600 issues

Expense ratios

SPY 0.09%, BND 0.03%

Rebalancing

Back to 60/40 on the first trading day of each year

The bonds are not there to make money

Judge this portfolio by its maximum drawdown, not its return. Forty percent in investment-grade bonds is expected to cost something in a rising stock market; what it buys is a shallower hole in a falling one, and the drawdown row below is the entire case for the allocation stated as a number.

Open one of the all-stock pages on this site alongside this one and compare only that row. The return difference is the price of the drawdown difference.

Rebalanced every January — so it stays 60/40

On the first trading day of each year the portfolio is reset to sixty-forty at that day's close: whichever half grew faster is sold down and the other topped up. Without that, a long stretch of rising stock prices would have let the equity share drift towards eighty percent, and the risk figures would describe a different portfolio from the one in the title.

The reset is free here. In a taxable account, selling the half that rose can realise gains; the test counts no taxes and no trading costs.

Why the window starts in 2007

BND launched in April 2007, and the test only runs over dates every holding actually has prices. So the window begins there and says so, rather than extending a bond series backwards into years it did not exist. It happens to be a useful starting point: the stretch that follows immediately contains the deepest equity drawdown in the series.

Sources

Fund facts from Vanguard's BND and SPDR's SPY documentation. Prices are split-adjusted end-of-day closes; BND's monthly distributions are reinvested on their ex-dates exactly like a stock dividend. Change the split in the calculator above.

How this backtest works

Daily bars, not monthly

The portfolio is marked to market every trading day, so drawdowns and volatility reflect what actually happened between month-ends — 252 observations a year instead of 12.

Split-adjusted prices, cash dividends

Prices are split-adjusted closes; each dividend is applied as cash on its ex-date at the matching split-adjusted per-share amount. Dividend-adjusted (“total return”) prices are never used, so income is counted exactly once.

A lump sum, or money every month

The weights set the opening trade and then drift, unless you rebalance each January. A monthly amount buys more at the target weights on each month's first trading day, and the comparison line gets the same. No taxes, no commissions.

The window is the overlap of every holding's price history, and a dividend cut is only reported when both the annual total and the average payment fell. Full methodology on the backtest tool.

Questions

What does the 40% in bonds actually buy?

A shallower hole. Compare the max drawdown here with the S&P 500's beside it — that difference is the entire argument for the allocation, and it is a far more useful number than the return.

Is this rebalanced back to 60/40 each year?

Yes. On the first trading day of each year both halves are reset to 60/40 at that day's close, which is what keeps it a 60/40 portfolio. Left alone for twenty years, the stock share would have drifted towards 80%. Trading costs and taxes on the rebalance are not included.

Why does the window start in 2007 rather than twenty years ago?

BND launched in April 2007, and the test only runs over dates every holding has prices. It starts there and says so rather than filling in a bond series that did not exist yet.

Are the bond fund's distributions included?

Yes — BND pays monthly, and those payments are reinvested exactly like a stock dividend. Over twenty years that reinvested coupon is a large share of what the bond half contributed.