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  5. ZAG: I keep hearing about the 60/40, 40/60 ratio of what you should be invested in with regards to Stocks and Bonds. [BMO Aggregate Bond Index ETF]
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Q: I keep hearing about the 60/40, 40/60 ratio of what you should be invested in with regards to Stocks and Bonds...

- I have Never held Any Bonds of Any Sort...Just Stocks...

- Please recommend some sort of Bond Investment I can consider that is somewhat safe, but Not ultra conservative...

- I remember when my parents said that Canada Savings Bonds were a good and reliable investment...a vintage memory...

Have a good weekend
Thanks
M
Asked by michael on April 24, 2023
5i Research Answer:

The 60/40 stock/bond portfolio is a traditional style of investment portfolio that utilizes the uncorrelated nature of stocks and bonds, and the conservative, low volatility profile of bonds with the higher volatility and higher expected returns of stocks. Although, bonds have recently increased their correlation with stocks, and volatility has heightened amid significant monetary tightening by Central Banks, making the 60/40 portfolio less attractive in recent years.

We feel that given the aggressive monetary tightening by central banks that bonds offer a good risk/reward opportunity right now. For exposure to bonds via ETFs, we prefer aggregate bond funds for their diversification, and ability to protect capital when rates are rising rapidly (as short-term bonds will have less price sensitivity) and will also see capital appreciation when rates drop rapidly (long-term bonds increase at a faster rate). We like ZAG and VAB, which are both aggregate bond ETFs.