What is the Average Rate of Return on a Conservative Portfolio?

Posted Sep 27, 2022

calc-823668698It’s difficult to say what the average return of a conservative portfolio is as there are many different ways to configure a conservative portfolio. There are many assets to choose from when talking about a conservative portfolio. But one thing they all have in common is that they are low return and low volatility portfolios. We’ll look at some broad examples and a couple of specific examples as well.

What Is A Conservative Portfolio?

A conservative portfolio contains mostly low-volatile, diversified assets. Because these assets have low volatility, they also have lower returns than their volatile counterparts. This portfolio type is generally for those with a low-risk profile, such as retirees. The portfolio won't grow much, but it also isn't expected to lose much value.

The main goals of a conservative portfolio are income and conservation of capital. For that reason, conservative portfolios are also called income portfolios.

Capital is conserved by reducing volatility. To achieve these goals, a conservative portfolio is made up of mostly cash, bonds, and cash equivalents such as savings accounts and CDs. This doesn’t mean equities can’t go into a conservative portfolio. But they are no more than about 30% of the portfolio.

The following are examples of conservative portfolios:

40% Short-term government bonds

40% Ultra short-term corporate bonds

20% Ultra short-term government bonds


60% Fixed income

15% Cash alternatives

25% Equities

The first example is considered a 100% fixed income portfolio. Some other configurations include:

10% equities / 90% bonds

20% equities / 80% bonds

30% equities / 70% bonds

Let’s look at the historical returns of these portfolios.

Rates Of Return

The following are taken from Vanguard's portfolio allocation page:

100% fixed income:

Average annual return        5.33%

Best year (1982)        32.62%

Worst year (1969)        –8.13%

Years with a loss        14 of 94

10% equities / 90% bonds:

Average annual return        5.99%

Best year (1982)        31.33%

Worst year (1969)        –8.14%

Years with a loss        12 of 94

20% equities / 80% bonds:

Average annual return        6.62%

Best year (1982)        30.01%

Worst year (1931)        –10.74%

Years with a loss        13 of 94

30 equities / 70% bonds:

Average annual return        7.21%

Best year (1982)        28.67%

Worst year (1931)        –15.07%

Years with a loss        15 of 94

The above represents some of the lowest portfolio returns but also the lowest volatility.

Many tools are available online to help an investor construct a conservative portfolio. In fact, most brokerages will allocate your cash automatically by simply filling out a risk profile that leans conservative. For more complex portfolios, working with a financial adviser may be more helpful.

This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions.

Examples shown are hypothetical and for illustrative purposes only.

Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk.  

A bonds yield, share price and total return change daily and are based on changes in interest rates, market conditions, economic and political news, and the quality and maturity of its investments. In general, bond prices fall when interest rates rise and vice versa. You could receive back less than you initially invested and, unless otherwise noted, there is no guarantee that you will receive any income.

Past performance is no guarantee of future returns. Investing involves risks, including the loss of principal. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.

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