The boring, balanced portfolio is back to doing good work for investors.
The default mix for a balanced portfolio is 60-per-cent stocks, 40-per-cent bonds. With that blueprint, you have likely broken even or made the slightest of gains through the first three crazy months of 2025. In the moment, that’s a win.
The latest tariff developments threaten a new and more dire phase for financial markets in Canada, the United States and globally as well. Trade uncertainty raises questions about inflation, economic growth and corporate profits.
But the first quarter of the year has delivered plenty of volatility already, and some ideas on what is working and not working in investing.
Bonds are working. The benchmark for the Canadian bond market was up 2 per cent through the first three months of the year, including interest paid and increasing prices for bonds.
Believe it or not, Canadian stocks have also been working, at least on a comparative basis. The S&P/TSX Composite Index produced a total return of dividends and share price growth of 1.5 per cent for the first three months.
Even better are international stocks, which means non-North American companies in developed markets. The MSCI Europe Australasia Far East index produced a total return of about 3 per cent over the first quarter.
What is not working right now is the U.S. stock market. The S&P 500 was down 4.6 per cent for the first three months of 2025, a reflection of concerns about an economic slowdown and the fact that U.S. stocks have absolutely crushed it in recent years and look pricey.
Performance numbers are backward-looking and not considered a reliable indication of future performance. But recent returns for bonds and stocks do offer some lessons for investors wondering about the tariff effect on their tax-free savings accounts and retirement funds. So far, we’ve seen some impressive durability.
The 60-40 portfolio mix fell out of favour a few years ago as a result of bad performance from bonds. Bonds did lose money in 2021 and 2022 as inflation erupted, a development that could be echoed in the coming months if tariffs bring substantial price increases.
But weaker economic growth, or even a recession, should limit the ability of companies to pass on higher prices to customers. This gives us a reasonably positive outlook for bonds, unlike stocks. While U.S. President Donald Trump and his advisers believe in tariffs, markets see them as detrimental to the economy and corporate profitability.
The concept behind diversification is to always have something in your portfolio that is working, while also accepting that there will be something in your portfolio that is not working. This means having exposure to the major asset groups – bonds, plus stocks from Canada, the United States and internationally.
How do you spread your money around? Here are some sample portfolio breakdowns used by asset allocation exchange-traded funds, which offer balanced portfolios in a single purchase:
- Fidelity All-in-One Balanced ETF FBAL-NE: 39-per-cent bonds, 59-per-cent stocks, including 30-per-cent U.S., 15-per-cent international and 14-per-cent Canadian; this fund also has a tiny weighting in crypto.
- iShares Core Balanced ETF Portfolio XBAL-T: 41-per-cent bonds and 59-per-cent stocks, including a 26-per-cent weighting in the U.S. market, weightings of 15 per cent or so in Canada and internationally and 3 per cent in developing markets.
- Vanguard Balanced ETF Portfolio VBAL-T: 40-per-cent bonds and 60-per-cent stocks, including 28 per cent in the U.S. market, 18 per cent in Canada, 10 per cent in international developed markets and 4 per cent in developing markets.
A 60-40 portfolio mix is suitable for people near and in retirement, and investors of all ages who want to moderate stock market risk. A Gen Z investor could go with a 80-20 mix, or even all stocks. The more you increase your stock market exposure, the more potential you have for both bigger gains and losses.
More financial market drama lies ahead as the trade war continues, and there will be bad days. What we’ve learned so far is that one of the most basic principles of investing, diversification through mixing of stocks and bonds, is working well. Probably better than expected.
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