Why the 60/40 Is No Longer Enough for Income
While bonds and dividend-paying equities have long been core income sources, the classic 60/40 portfolio has struggled. In today’s uncertain market, we believe investors must address three key cracks in traditional income portfolios.
Historical vs. Expected Returns Across Stocks and Bonds
The Challenge with Bonds
Higher nominal yields can mask the underlying risks of inflation and duration. In the current environment, traditional bonds have become less reliable for providing stability within income portfolios.
Dividend Concentration Risk
Dividend stability is more fragile than it appears. Yields are often concentrated in a narrow set of market leaders, making portfolios even more susceptible to economic downturns.
The Correlation Creep
In recent market drawdowns, stocks and bonds have struggled to diversify one another, and looking ahead, returns across both asset classes are expected to be more muted.
Source: Bloomberg, BofA, Burgiss, Cambridge, KKR Global Macro & Asset Allocation analysis. Last 5-Years return from October 31, 2020 to October 31, 2025 for consistency across asset classes. No representation is made that the trends depicted or described above will continue. Expected returns are hypothetical in nature and are shown for illustrative, informational purposes only. Indices are unmanaged. It is not possible to invest directly in an index. Past performance is not a guarantee of future results.
Income Portfolio Framework
The income portfolio framework is designed to deliver steady cash flows while maintaining access to liquidity. This portfolio maintains its 40% Public Bond allocation, while reallocating out of Public Equity into yield-oriented private assets. The framework is designed as an illustrative starting point rather than a prescriptive solution and should be adapted to align with each client’s individual objectives, risk profile, and investment horizon.
How Does the Income Portfolio Compare to the 60/40?
Designed for stability and cash flow, the income portfolio framework has historically delivered a 4.5% yield — higher than the 3.1% yield of the traditional 60/40 portfolio.
Income Portfolio Allocation Breakdown
Within the income portfolio framework, 30% is reallocated from Public Equities to private market alternatives—Private Credit, Infrastructure, and Real Estate—prioritizing cash flow while maintaining the full bond allocation for liquidity.
CORE INCOME GENERATOR
Private
Credit, 15%
Private
Credit anchors
the income
portfolio,
delivering
consistent cash
flows. Direct
Lending loans
feature floating
rates to
mitigate
volatility risk,
while their
senior position
provides a
defensive
cushion against
market
shifts.
Key
Characteristics:
- Enhanced Yields: Historically high cash yields
- Rate Protection: Floating-rate structures
- Senior Position: Secured priority in the capital structure
STABILITY ANCHOR
Infrastructure,
7.5%
Infrastructure fulfills essential functions with high barriers to entry. Revenue is often underpinned by regulation or long-term contracts with inflation escalators, resulting in stable, predictable cash flows even during low-rate periods.
Key Characteristics:
- Stable Cash Flows: Predictable revenue streams
- Inflation Linkage: Contractual escalators
- Defensive Profile: Essential services with moats
INFLATION HEDGE
Real
Estate, 7.5%
Real Estate delivers inflation hedging and tax benefits through depreciation. This allocation also includes Real Estate Credit, which offers predictable cash flows based on loan repayments and lower risk due to seniority in the capital structure.
Key Characteristics:
- Inflation Hedge: Hard asset value preservation
- Tax Efficiency: Benefits from asset depreciation
- Dual Income: Rent payments and interest from loans