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The definition of a “perfect” balanced portfolio is thin. For some, it’s the classic 60/40 split between equities and debt. Others prefer a more aggressive 70/30 mix. In truth, there is no size-fits-all approach. It depends on an individual’s risk appetite, financial goals, and time horizon.
Still, asset allocation plays a massive role in long-term returns. In a study by Brinson, Hood, and Beebower, 91.5% of the portfolio’s return is determined by the mix of asset classes. Not individual stock picking or timing the market.
In this blog, we will understand US stock portfolio allocation and how to build a balanced US stock portfolio.
What is US Balanced Portfolio?
A balanced US stock portfolio combines a mix of different types of assets in a predetermined ratio. An ideal investment portfolio mix may be 60% in equity, 40% in fixed-income securities such as US Treasury Bonds. Some also add gold to their portfolio. While the equity offers higher growth, bonds provide stability, resulting in less volatile returns.
A study by Morgan Stanley highlighted that the 60/40 US Equity and Bond portfolio has given an annualized growth of 7.3% over the past 200 years. More importantly, instances of negative return in both equity and bond in the same year were 16 times during this period. This implies that the probability of both stocks and bonds experiencing negative returns in the same year is as low as 8%.
The study further highlighted that, 60/40 portfolio balance performs best when real growth accelerates and inflation declines. This happens because growth drives corporate earnings, and falling inflation and interest rates boost bond prices. In such a scenario, the portfolio has delivered nearly 15% returns, as can be seen in the stat above.
In an opposite scenario, where growth declines and inflation rises, the portfolio return falls to 5.5%.
Benefits of a US Balanced Portfolio
The following are the factors that make a strong US stock portfolio:
Diversification: It reduces the risk and impact of one bad stock investment on your total return.
Better Downside Protection: A perfectly balanced portfolio helps to limit losses when the broader market is falling sharply.
In a study published by the CFA Institute, a 60/40 US stock portfolio has experienced a maximum drawdown of nearly -45% between the study period 1901 to 2022.
Drawdown indicates that the portfolio fell 45 points for every 100 points of decline in the market.
Steady Long Term Growth: The S&P 500 index has returned 12.5% total returns in the last 10 years, as of 31st March 2025. While the 10-year Treasury Yield ranges between 4 to 5%. Together, they offer smoother growth with less volatility.
Flexibility: Depending on the market conditions, you can dynamically adjust asset allocation. For instance, changing equity debt split to a 70:30 ratio when the market is volatile, or increasing equity mix when the market is favorable.
Using Mutual Funds & ETFs to Build a US Balanced Portfolio
Investing in mutual funds and ETFs are a great way to build a US balanced portfolio. In 2024, nearly 54% or 71 million US households are invested in mutual funds. The value of funds held by US households amounts to $29 trillion.
Mutual funds and ETFs have a built-in asset allocation feature. They mix different asset classes within a single product. For example- Vanguard Balanced Index Fund maintains an asset allocation of 60% in equity and 40% in debt.
Asset allocation is the most important factor in long-term investment performance. While it is difficult to maintain an exact ratio all the time due to the volatile nature of the market. Mutual Funds make it simple by doing the allocation work. They automatically rebalance the mix of stocks and bonds to stay aligned with the fund’s objective.
Tips to Build a Balanced Portfolio with US Stocks
Building a balanced portfolio is key to steady long-term growth. It’s not just about mixing stocks and bonds, but about aligning your investments with goals and risk appetite.
First, the starting point can be following the classic 100 minus age rule of thumb for asset allocation.
This rule is a simple guideline where you deduct your age from 100. The result will be the percentage you should allocate to equities. For example, if your age is 30, as per this rule, you need to allocate 70% of the portfolio to equity and 30% to debt.
The general idea of this rule is, the younger you are, the more risk you can tolerate. Therefore, allocate a higher percentage to equities. Gradually, as you age, you should increase the allocation to debt securities.
Second, you should diversify across stock types based on market capitalization. Large-cap, mid-cap, small-cap, and new age growth stocks.
Third, rebalance regularly. Markets move, so does the portfolio. There will be times when your targeted allocation of 60/40 mix can change to a 70/30 mix because of a change in the value of securities.
Therefore, you should review your portfolio once a year. If your allocation drifts more than 5%, consider selling assets that are overweight. Or, buying those assets that have become underweight.
Lastly, you should set goals to stay on course and be disciplined with investments.
Useful Tools for Portfolio Tracking and Rebalancing
There are many free portfolio tracking platforms available online, using which you track portfolio.
Additional Considerations for a US Balanced Portfolio
Building a US balanced portfolio is more than choosing the right equity debt portfolio split. You need to consider multiple factors that support your long term goals.
Understanding Your Risk Capacity & Risk Tolerance
In investing, most confuse risk tolerance with risk capacity. Because, the former is emotional, how you react to market swings. And, later is financial, how much risk you can take.
You need to ask yourself, could I stay invested, if my portfolio value declines by 20%. If not, you need to adjust your asset allocation and add more debt to reduce the risk quotient.
Planning for Liquidity
Not all assets are liquid and can be sold easily. Even a balanced portfolio can fail if the stocks and debt instruments are not liquid enough.
You should only invest in securities that are frequently traded by investors. It ensures your portfolio is highly liquid and can easily access cash.
Stress Test Your Portfolio
Market returns are not linear and subject to volatility. It goes through cycles of corrections, crashes, and recoveries.
Before investing, you need to look at how the securities have performed in past downturns, like in 2008, 2020, etc. It gives a realistic view of volatility and sets the expectation right.
Account for Inflation
Inflation is the silent killer of money. It gradually reduces your purchasing power over time. For instance, with 4% inflation, $100 now will be worth $121.6 five years later.
Therefore, you need to have a US stock portfolio allocation which can beat inflation over time.
Approaching Retirement? Shift Toward a Conservative Portfolio Strategy
As you near retirement, you probably have accumulated 80 to 90% of your total retirement corpus. At this stage, the focus should shift from aggressive growth to capital preservation.
Because, even 5% volatility in the market can reduce the value of your corpus significantly.
Therefore, consider reducing your stock allocation and choose a more conservative portfolio strategy. Like having 60 or 70% of your portfolio in debt securities and remaining in equities. This ensures steady portfolio growth, while not abandoning growth completely.
Following the 100 minus age rule of thumb for asset allocation can be a reference point for creating a US balanced portfolio.
How Often Should I Review and Rebalance My Portfolio?
How Often Should I Review and Rebalance My Portfolio? Rebalancing your portfolio is like fine tuning a musical instrument. It ensures the portfolio continues to reflect your goals and risk tolerance.
Over time, it’s natural that stocks and bonds split can increase or decrease with the shift in market cycles. So, reviewing and rebalancing your portfolio is a must. Often a fixed schedule like every six or twelve months is considered effective.
You should also look for threshold-based rebalancing. Meaning, if the portfolio balance shifts outside a certain range like 5% from target allocation, you need to consider rebalancing.
Following a hands-off approach is a must, as it prevents overtrading, minimizes cost, and taxes.
What Role Do Alternative Investments Play in a US Balanced Portfolio?
Alternative asset classes in a US balanced portfolio can play a valuable role. It helps to diversify risks, smooth volatility, and unlock new sources of returns.
Common examples of alternative asset classes include Real Estate Investment Trust (REIT), Metas (Gold, Silver), and other structured products.
While not all alternative investment instruments are suitable for every investor, many offer low correlation with traditional markets.
For example, gold tends to perform better during high uncertain and inflationary periods. REITs offer income and inflation through property ownership.
A study by JPMorgan found that by allocation 20% of your portfolio to alternatives can improve returns and reduce volatility. Investors who built a portfolio 50/30/20 split achieved an annualized return of 8.6% over a 10 year period, compared to 8.1% return from 60/40 portfolio.
What Is the 5% Rule of Investing?
The 5% rule of investing states you should not put more than 5% of your money in any one investment.
This rule helps you to:
- Avoid big losses from one poor investment
- Stay diversified
- And, keep your risks under control
The rule is especially helpful when investing in equities of other riskier assets.
Conclusion
Building a balanced portfolio is not a one-time exercise. It needs regular review, adjustments when needed, and staying focused on long term goals. The US stocks offer great potential, but the balance is the key. With the right mix of assets, tracking tools, and discipline, you can build a strong portfolio that grows with time.
