The 70/30 or 60/40 Rule – And Why It is a Guide, Not Gospel
If you have spent any time at all reading personal finance content (and as a reader of this blog, I’m sure you have, so I, the writer of this blog, thank you!) you must have come across various financial “rules.” Some include things we have talked about on this blog, like – Know Your Risk, or Budgeting and Automation Are Key, or Always Max Out Your RRSP Company Match.
We’ve saved some rules to talk about later – like today, when we’re going to discuss the “70/30 Rule.” You may have seen it as the “60/40 Rule” or the “50/30/20 Rule” or the “70/20/10” rule, or even the “Individual Financial Management Matrix of Inflows Allocation.” I think that last one is used exclusively by a friend of mine. For ease of understanding, I’ll refer to it as the “70/30” rule, but I want to be very clear that this is not a rule at all. At most, you can consider it a general guide, when building your own financial journey. Let’s start by understanding what it is.
What is the 70/30 or 60/40 Rule?
Simply put, the guidepost suggests doing one thing with 70% (or 60%) of your money, and something different with the remainder. In the case of investing, it usually refers to holding 70% (or 60%) in stocks, and 30% (or 40%) in bonds.
The earliest reference that I could find to something like this formula is in “The Intelligent Investor” by Benjamin Graham, which was first published in 1949. In it, Graham writes, “We recommend that the investor divide his holdings between high grade bonds and leading common stocks; that the proportion held in bonds be never less than 25% or more than 75%, with the converse being necessarily true for the common-stock component.”
Then, in a 1957 letter written by Warren Buffett to limited partners, Buffet writes, “The market decline has created greater opportunity among undervalued situations so that, generally, our portfolio is heavier in undervalued situations relative to work-outs than it was last year. Perhaps an explanation of the term “work-out” is in order. A work-out is an investment which is dependent on a specific corporate action for its profit rather than a general advance in the price of the stock as in the case of undervalued situations. Work-outs come about through: sales, mergers, liquidations, tenders, etc. In each case, the risk is that something will upset the applecart and cause the abandonment of the planned action, not that the economic picture will deteriorate and stocks decline generally. At the end of 1956, we had a ratio of about 70-30 between general issues and workouts.” Note that Buffett does not refer to putting the 30% in bonds, but in “workouts” instead.
More recently, in 2022, Peter Bernstein wrote an article in Bloomberg Personal Finance called “The 60/40 Solution.” This article said, “Once upon a time—that is, for many years before the great bull market of the ’90s—the most popular benchmark for portfolio asset allocation aimed at this goal was about 60 percent in stocks and 40 percent in fixed-income investments. After 1990, this seemingly stodgy arrangement largely went by the boards as stocks roared ahead, encouraging institutional and individual investors to become increasingly aggressive in their search for higher returns. But now the high-tech bubble has burst, the economy has weakened, and the war on terrorism has landed at our front door. Does this fundamental transformation in the environment mandate a return to 60/40? The short answer to this question is ‘Yes!’” He laid out his arguments, including psychology and behaviour, and ended by saying he proposes restoring 60/40 to its rightful place as the center of gravity of asset allocation for long-term investors.
Why the 70/30 or 60/40 Model Could Work
For many people, money is scary, and they don’t know how to deal with financial matters. For people who prefer simple rules of thumb, a way to start their asset allocation journey could be a 70/30 or 60/40 portfolio – either is a well-trodden path. It’s easy to understand with just two general allocations – a portfolio of divided between stocks and bonds. This also takes care of the only free lunch in investing (another rule!) which is diversification.
Why the 70/30 or 60/40 Model Might Not Work
The most common and reliable relationship in investing has been stocks and bonds. When stocks fall, usually, bonds rise. But increasingly, that relationship has become a little rocky. For example, in 2022, both stocks and bonds fell. And in the panic of the 2025 tariff selloff (and rapid buyback) U.S. Treasury yields rose (meaning the prices fell.) Plus, an investor in her 20s has a very different risk profile than an investor in her 60s. It would not be wise for the two of them to have the exact same portfolios. Additionally, the traditional 60/40 or 70/30 portfolio ignores any other asset class, which means that if you had not invested in a hedge like gold or silver, you would have missed out on the astronomic rise of these metals in 2025.
Finally, a portfolio needs frequent rebalancing to stay within the chosen framework, whether that is 60/40, or 70/30. Most retail investors do not have the skillset, time or inclination to track their investments on a real-time basis, and so will usually end up missing good opportunities in that way.
Models are a Good Guide, But Not Always Gospel
For an investor just starting out, a model like 70/30 or 60/40 might be a way to dip your toe into investing. But as we’ve always said, it is more important to know your financial goals, risk appetite, and risk tolerance, and then build a tailored approach. Your financial journey is your own, so while rules of thumb are a good place to start, it is more important that you build an investment portfolio that works for you and your goals.
Harvest ETFs offers straightforward solutions to help investors with their selections. For example there’s the Harvest asset allocation ETFs which take care of the more complicated aspects of managing a portfolio, such as rebalancing. Among these is the Harvest Balanced Income & Growth ETF (TSX: HBIG) which has a 60/40 portfolio built in, and invests, on a non-levered basis, in a portfolio of exchange-traded funds that are listed on a recognized North American stock exchange that provide exposure towards large capitalization equity securities, investment grade bonds or money market instruments issued by corporations or governments.
Additionally, investors in the Harvest asset allocation funds get access to covered call ETFs, which aim to generate income for investors through owning a portfolio of stocks and then buying call options on those stocks and collecting the option premiums which are paid out to investors as income.
Harvest ETFs has a wide range of covered call ETFs for investors of all stripes and risk tolerances. You can find out more about covered calls here.
Disclaimer
This communication is meant to provide general information for educational purposes. Any security mentioned herein is for illustration purposes and should not be taken as an invitation to purchase or sell such security. The content of this article should not be construed as investment advice. Commissions, management fees and expenses all may be associated with investing in Harvest Exchange Traded Funds managed by Harvest Portfolios Group Inc. (the “Funds”). Please read the relevant prospectus before investing. The Funds are not guaranteed, their values change frequently, and past performance may not be repeated. Distributions are paid to you in cash unless you request, pursuant to your participation in a distribution reinvestment plan, that they be reinvested into available Class units of the Fund you own. If a Fund earns less than the amounts distributed, the difference is a return of capital.
