In Part 1 of this series, we explored why diversification matters and how combining assets that behave differently can reduce risk, smooth volatility, and help investors stay disciplined during market stress.
Now in Part 2, we move from concept to application. Using real historical data from the Zorroh Portfolio Analyzer (https://analyzer.zorroh.com), we compare two simple portfolios: 100% Stocks v/s The 60/40 Portfolio over a long period to see exactly how diversification shows up in practice.
The Setup: 100% Stocks vs The 60/40 Portfolio
We compare the performance of two portfolios from January 2011 to October 2025:
- 100% Stocks: 100% SPY, representing the U.S. equity market.
- 60/40 Portfolio: 60% SPY and 40% AGG, a U.S. core bond ETF.
Here is how an investment grew over that period in total %.
(Source: Adjusted closing price data from Yahoo Finance)
Performance Statistics: Return and Risk Side by Side
The Zorroh Portfolio Analyzer (https://analyzer.zorroh.com) summarizes the key performance metrics for both portfolios over the same period.
| Metric | 100% SPY | 60/40 Portfolio (SPY 60%, AGG 40%) |
| CAGR | 14.0% | 11.1% |
| Annualized Volatility | 17.2% | 12.8% |
| Sharpe Ratio | 0.81 | 0.86 |
| Max Drawdown | -33.7% | -26.5% |
(Source: Calculations from the Zorroh Portfolio Analyzer)
Volatility: How “Bouncy” Your Portfolio Feels
Volatility measures how widely your portfolio’s value swings over time. Higher volatility means sharper ups and downs. Lower volatility means smaller, more predictable movements in your account balance.
(Source: Adjusted closing price data from Yahoo Finance)
Max Drawdown: The Pain Index
Max drawdown measures the worst loss from peak to trough during the period. As we see, the 60/40 Portfolio saw a lower drawdown compared to a 100% SPY portfolio
- 100% SPY: -33.7%
- 60/40 Portfolio: -26.5%
Correlation: The Engine Behind Diversification
The 60/40 portfolio works because stocks and bonds do not move in perfect sync. Their moderate correlation helps bonds provide stability when stocks are under pressure.
(Source: Explanation of correlation via CFA Institute)
(Source: Calculated using adjusted daily returns from Yahoo Finance)
(Definition of Sharpe Ratio: Investopedia)
What This Means for Real Investors
Over the 2011 to 2025 period, the diversified 60/40 portfolio did not deliver the highest ending value. However, it offered:
- Lower volatility and fewer large swings
- Shallower maximum drawdowns
- A higher Sharpe ratio and better risk efficiency
- A smoother path that is easier to stay committed to
Disclaimer:
The content on this blog (“Zorroh”) is provided for general informational and educational purposes only. It is not intended as investment, financial, tax, legal, or other professional advice. Past performance is not indicative of future results. Investing involves risk, including possible loss of principal. Always conduct your own research or consult a qualified professional before making investment decisions.