Portfolio Construction
John Stoj · October 7, 2026
My wife is a cardiac anesthesiologist, and her operating room is full of machines that measure everything and decide nothing. Heart rate. Blood pressure. Oxygen. Every number on those monitors is accurate. Not one of them can tell you why the patient is on the table.
A 60/40 portfolio is like that. It’s an accurate reading. It tells you what someone owns. It doesn’t tell you what the portfolio is for.
What the label does tell you
Let me be fair to it. 60/40 means roughly 60% in stocks and 40% in bonds. It’s useful shorthand, and shorthand has its place. I’m an index fund investor myself, and I have no quarrel with a low-cost, diversified 60/40 fund.
My quarrel is with the job the label gets handed. Somewhere along the way, it became the plan.
Same label, different jobs
Take two made-up households, each with $1,000,000 in a 60/40 portfolio. The households and the numbers are invented. This is an illustration, not a recommendation for anyone.
The first household is two years from retiring and expects to draw $50,000 a year from the portfolio. Its $400,000 in bonds is about eight years of withdrawals, before counting any interest or inflation. For this household, the 40% has a job. It’s the money that gets spent while stocks recover from a bad stretch, so nobody has to sell stocks at the bottom to pay the bills.
The second household is 40, still saving, and won’t touch the money for 25 years. It also holds $400,000 in bonds. What are those bonds waiting to pay for? Nothing. They might be the right amount of comfort for the person who owns them. They might be more insurance than the plan calls for. The label can’t say which.
Same two numbers. Two completely different portfolios.
The question the label skips
The question underneath is a plain one: what is each piece for?
Growth that outpaces inflation is a job. A bill due in six years is a job. Next year’s spending is a job. Each one calls for something with different characteristics, and the characteristics come from the job, not from a percentage.
When every piece has a job, the allocation is an answer. When none of them does, it’s a guess that happens to be written as two numbers.
Why the label sticks
It survives because it’s easy. It fits on a statement. It fits in a sentence. It never has to answer a follow-up question. “What’s your allocation?” “Sixty-forty.” Conversation over.
I know how that feels from the inside. When I moved my retirement accounts to what I called, “conservative,” a 60/40 allocation, I held it for most of a decade. I knew what I owned. I couldn’t have told you what the 40 was meant to do.
Starting from the other end
Asset Life Matching starts with the obligations. Describe each one by its timing, certainty, flexibility, inflation sensitivity, and consequence, then choose assets whose characteristics fit.
The result might land on 60/40. It might land on 70/30, or 50/50, or something that doesn’t reduce to two numbers at all. If it does land on 60/40, that’s fine. The difference is that the number now comes with an explanation, and when the life changes, the explanation tells you what to change.
The short version
An allocation describes what someone owns. It doesn’t explain what the portfolio is meant to accomplish. The label tells me what’s in the account. The job tells me what to do about it. I’d start with the job.
This resource is part of the Asset Life Matching library. Start with What Is Asset Life Matching? →
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Further reading
Christine Benz, Morningstar, October 2023. Benz starts from anticipated spending to set the allocation, instead of starting from a label like 60/40.
I chose these links because I think they’re worth reading. I have no financial relationship with the authors or their firms, and I’m not paid for them. Their views are their own.
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