The classic 60/40 portfolio may steal the spotlight, but for investors looking to generate more income from their portfolio or feeling uneasy about the economy, its lesser-known cousin, the 40/60 portfolio, could be their new best friend.
The 40/60 portfolio flips the classic 60/40 mix on its head, increasing bond exposure to 60% while scaling back stocks to 40%. Historically, bonds have delivered more stable returns and higher income than stocks—2022 being a rare exception. With interest rates now higher, bonds have regained their appeal as both income generators and diversifiers. By tilting toward bonds, investors may benefit from a steadier income stream and a smoother ride.
That balance is especially important in the moderately conservative allocation Morningstar Category, where top-rated funds tend to prioritize stability. Some go a step further, focusing almost entirely on income, which can come at the expense of diversification. These so-called multi-asset income funds, however, are beyond the scope of this article.
The 40/60 portfolio also stands out as a strong option for retirees. Since 2021, Morningstar’s annual research on safe withdrawal rates has consistently identified it as the most reliable starting mix for maintaining withdrawals over a 30-year retirement horizon.
The 11 Best Balanced Funds for Income
These funds in the moderately conservative allocation category had at least one share class that earned top Morningstar Medalist Ratings with 100% analyst coverage as of April 2, 2025.
- American Funds Conservative Growth & Income RINFX
- Vanguard Wellesley Income VWINX
- T. Rowe Price Retirement Balanced TRRIX
- American Funds Retirement Income Portfolio—Conservative RQRPX
- American Funds Tax-Aware Conservative Growth & Income TXIFX
- Nuveen Lifecycle Index Retirement Income TRILX
- Vanguard LifeStrategy Conservative Growth VSCGX
- T. Rowe Price Spectrum Conservative Allocation PRSIX
- Vanguard Tax-Managed Balanced VTMFX
- Hartford Balanced Income HBLYX
- MFS Conservative Allocation MACIX
How Much More Income to Expect From the 40/60 Portfolio
To see how income stacks up between a 40/60 and a 60/40 portfolio, we built both using Vanguard Total Stock Market ETF VTI and Vanguard Total Bond Market Index VBTLX. Then, we looked at their 12-month yields going back to 2003. Exhibit 1 shows the results.
On average, the 40/60 portfolio delivered an income edge of about 0.33%. That might sound modest, but on a $100,000 portfolio, it translates to an extra $3,300 per year. That average, however, is skewed by a decade of ultralow interest rates following the global financial crisis.
Since the Federal Reserve began aggressively hiking rates in 2022 to combat inflation, the 40/60 portfolio has pulled further ahead. As of the end of February 2025, its 12-month yield was 2.69%, compared with 2.21% for the 60/40 mix—a difference of 0.48%. In March, as economic uncertainty sparked a rally in interest rates, the gap narrowed slightly to 0.40%, still amounting to $4,000 more in annual income on a $1 million portfolio.
What About Returns?
Income is just one side of the total return coin. The other side, capital appreciation, is where stocks have historically outdone bonds over time. To gauge what investors in a 40/60 portfolio might be leaving on the table, we looked at rolling five-year returns for both the 40/60 and 60/40 portfolios going back to 2003. Exhibit 2 shows the best, worst, and average five-year returns through March 2025.
The 40/60 portfolio offers less upside potential than the 60/40 mix. On average, it has trailed by 1.33 percentage points annually over five-year periods. During the best five-year stretch for both portfolios (March 2009 through February 2014), the 40/60 lagged by 3.79 percentage points annually. As a result, the 60/40 portfolio’s long-term growth potential should remain higher.
However, by sacrificing some upside, the 40/60 portfolio has demonstrated greater resilience during periods of stock market volatility. Its worst five-year return since 2003 (March 2004 through February 2009) was still positive, while the 60/40 mix saw an annualized loss of nearly 2%.
This defensive edge has been evident again this year. Through April 4, the 40/60 portfolio has lost 3.6%, less than half the 7.1% decline seen in the 60/40 mix, as geopolitical tensions have shaken global markets.
Picking the Right Portfolio for You
Ultimately, deciding between a 40/60 and a 60/40 portfolio hinges on an investor’s risk tolerance and time horizon. While income is important, it shouldn’t be the sole factor in choosing the right mix of stocks and bonds. Those with higher risk tolerances and longer time horizons will likely lean toward the 60/40 portfolio. But for investors seeking more stable returns or with a shorter time horizon, the 40/60 mix offers a solid alternative.
