Why growth-oriented investors are rethinking 60/40 portfolios

Key takeaways

• The traditional 60/40 portfolio has faced increased scrutiny as inflation, interest rates, and market dynamics have shifted in recent years.
• Changing correlations between stocks and bonds have reduced some of the diversification benefits investors have historically relied on.
• Some investors are exploring different allocation approaches and asset mixes—including incorporating equity exposures like QQQ—while keeping risk, goals, and time horizons in mind.

For decades, the 60/40 portfolio—allocating 60% to stocks and 40% to bonds—has served as a straightforward framework for long-term investing. It became popular because stocks and bonds often historically moved differently from one another, potentially helping to smooth returns over time. But in recent years, changes in inflation, interest rates, and market behavior have led some growth-oriented investors to take a fresh look at how they diversify.

This doesn’t mean the 60/40 approach is “broken,” or that a different strategy is necessarily better. Instead, it reflects a shifting market environment—and a recognition that investors today may be dealing with different conditions than those that shaped the past several decades.

A shifting market environment

One of the biggest reasons some investors are re-examining traditional allocations has to do with rising correlations between stocks and bonds.

Correlation is a measure of how closely two investments move together:

• A positive correlation means they tend to move in the same direction more frequently
• A negative correlation means they more often move in opposite directions
• A correlation of zero means their movements are unrelated

For many years, stocks and bonds frequently showed negative or low correlations, which helped diversify portfolios with a blend of the two. But recently, they’ve been moving more in the same direction—especially during periods of market stress. Correlations may change over time.

According to a May 2025 report from Morningstar, the higher inflation that consumers have been dealing with in recent years often leads to closer performance links between stocks and bonds, which can reduce the benefit of including both in a portfolio. “Correlations between stocks and bonds edged into positive territory in 2021 and remained above 0.5 from 2022 through 2024,” according to the Morningstar report.¹ Remember, a positive correlation between two asset classes means they tend to move in the same direction more frequently.

That shift has changed how some investors view risk in a traditional 60/40 portfolio.

What’s behind changing correlations?

One factor is inflation, as mentioned above.

Inflation rose sharply in 2021 and 2022 due to a mix of global and economic challenges, including geopolitical disruptions such as supply chain shortages exacerbated by the Russia–Ukraine war. Tariffs on imported goods may also have fueled inflation more recently.

While inflation has moderated from its peak, it has remained elevated compared with the low-inflation environment of the 2010s. Higher inflation may put pressure on both stocks and bonds at the same time.

This trend is illustrated by the Consumer Price Index (CPI), which shows inflation accelerating beginning in 2021 before gradually cooling, yet remaining above historical lows.²

Exploring different diversification approaches

Because stocks and bonds have sometimes moved together more frequently in recent years, some investors have explored additional ways to diversify. These approaches vary widely and depend heavily on individual goals and risk tolerance, but may include:

• Adding assets that historically haven’t moved in line with traditional markets
• Incorporating lower-correlation investments
• Allocating across a broader mix of asset classes

Some investors have also explored alternative investments, which may include assets like real estate, private market investments, or digital assets such as cryptocurrencies. In general, alternatives refer to holdings outside traditional stocks and bonds.

It is important to note that alternative investments come with their own risks, including higher potential volatility, limited liquidity, or lock-up periods, and may not be suitable for all investors. Their increasing visibility reflects part of a broader trend toward more varied and personalized diversification strategies, even though alternative investments like private investments are generally more speculative than public investments and may incur significant losses.

Where can equities fit into a modern allocation

Within the equity portion of a diversified portfolio, some investors look for exposure to companies with strong growth potential or ties to long-term innovation trends. One potential way to get exposure to innovative companies is Invesco QQQ ETF, which tracks the Nasdaq-100® Index.

QQQ provides exposure to well-known, large-cap innovators across Technology, Consumer Services, Industrials, and other sectors. These include companies involved in areas such as artificial intelligence (AI), cloud computing, semiconductor design, cybersecurity, and digital platforms.

In a flexible allocation framework, investors may pair an equity sleeve like QQQ with a combination of bonds and other asset classes depending on their goals, time horizon, and comfort with risk.

A variation on a familiar framework

The 60/40 portfolio probably isn’t disappearing. But after a period defined by rising inflation, shifting interest rates, and more synchronized market behavior, some investors may be re-evaluating what diversification means for their portfolios. A more flexible approach—one that is grounded in personal objectives and mindful of risk—has become increasingly common.

While correlations, inflation, and market conditions will continue to evolve, the core idea remains the same: build a portfolio aligned with your needs and stay focused on the long term.