What is the Average Return on an 80/20 Portfolio?

Posted Oct 25, 2022


Every investor wants to pursue earnings while maintaining an acceptable exposure level, but the right balance of risk and reward differs from one person to the next. As an investor, your ability to achieve your goals is affected by your available assets and the amount of risk you can accept in the quest for reward. This calculation is sometimes called your risk tolerance. Your personal risk tolerance indicates how you may react to the ups and downs of particular investment options.

You decide how much risk to take in your portfolio.

When you build your investment portfolio, it's up to you to determine the amount of risk, the balance of equities and fixed-income instruments, and the specific choices within those categories. Of course, you probably will (and should) seek guidance from a trusted financial advisor to help you create the portfolio. But the decisions are yours.

Risk appetite is part of the equation. Your risk appetite depends on your willingness to accept the possibility of losing money. Yours will likely differ at various points of your life, depending on your current needs. Your risk appetite will probably also be influenced by previous experience with investing.

Another factor is your risk capacity. Even if you are theoretically willing to accept significant risks, your financial circumstances may prompt you to take a more conservative approach. For example, investing should not risk funds that you need for daily expenses.

The target risk level helps determine the appropriate asset allocation for your portfolio.

Once you understand your risk tolerance, you can assemble the pieces of a portfolio that can help you pursue your goals. The distribution of your investments between stocks and fixed income instruments like bonds will affect your average returns and risk exposure.

For example, an 80/20 portfolio is considered aggressive—which means it is focused on growth rather than stable income. According to Vanguard Advisors, the historical average return for an 80/20 portfolio from 1926 to 2019 is 9.61 percent. The worst year for such a portfolio was 1931, which showed a loss of 35.52 percent, while the best year was 1933, with a gain of 48.01 percent.1

Your risk tolerance and portfolio allocation may change over time.

One reason that some investment managers have been successful with retirement date target funds is that choosing one takes the guesswork out of portfolio composition for investors. For example, if you plan to retire in 2050, you can select a fund designed to invest aggressively to begin with and shift toward more conservative options as the retirement date gets closer. Investors can manage their portfolios similarly by moving their allocations and investments on a risk-preference basis over time.


 1advisors.vanguard.com. ”Portfolio allocations: Historical index risk/return (1926-2019)”


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.

Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.

Examples are hypothetical and for illustrative purposes only. Withdrawal strategies should take into account the investment objectives, financial situation and particular needs of the individual.

Neither Asset Allocation nor diversification guarantee a profit or protect against a loss in a declining market. They are methods used to help manage investment risk.

Past performance is not a guarantee or indication of future results. All investments have an inherent level of risk. The value of your investment will fluctuate with the value of the underlying investments. You could receive back less than you initially invested and there is no guarantee that you will receive any income.

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