The stock market has been doing well lately. However, threats are definitely emerging. First, geopolitical conflict threatens to tardy down the global economy. Additionally, there is the possibility of losing your white-collar job in the coming years.

Wondering how to protect your ISA or personal pension (SIPP) from a share market crash? The answer may lie in a 60/40 portfolio.

What is a 60/40 portfolio?

This division is an investment portfolio designed to combine growth potential with stability. It involves placing 60% of your capital in stocks and 40% in bonds to create a “balanced” portfolio.

The idea behind this asset allocation is that it should glossy out investment returns over time, providing solid long-term returns with much lower levels of volatility than an all-stock portfolio.

Stocks (which are higher risk, higher return assets) and bonds (lower risk, lower return) tend to move in opposite directions, so if stocks fall, bonds should provide a buffer to protect your portfolio.

It’s worth noting that this portfolio – first developed in the early 1950s – has been popular with financial advisors for decades. Because it has historically performed very well over the long term, returning around 8% per year with less turbulence than an all-stock portfolio (helping investors stick to long-term investment strategies).

That said, this does not guarantee a positive return every year. For example, over the last 25 years, a portfolio consisting of 60% exposure to S&P500 index and 40% to iShares Core US Aggregate Bond ETF would have six negative years (two years of which were almost unchanged).

Adding bonds to your ISA or SIPP

I will point out that it is now effortless to add bond exposure to an ISA or SIPP. An investor does not have to buy individual bonds issued by governments or companies. Instead, they can simply buy an ETF or actively managed fund.

There are a ton of different bond funds available on platforms like Hargreaves Lansdown and Interactive Investor. Many of them have low fees.

One that is potentially worth checking out is iShares Core Global Aggregate Bond UCITS ETF (LSE: AGBP). This provides exposure to a mix of government and corporate bonds (approximately 20,000 bonds in total).

The focus is on “investment grade” bonds. They are less risky than non-investment grade securities (so-called high-yield bonds or junk bonds).

This particular version of the ETF is currency-hedged. Therefore, exchange rates should not affect UK investors.

In terms of performance, the ETF has returned about 5% over the last year and about 15% over the last three (through the end of February).

However, it should be noted that 2022 had a very bad year (return around -12%) when interest rates skyrocketed. This can be explained by the fact that as interest rates rise, bond prices tend to fall (rate increases are risky in the future).

Fees are just 0.10% per year. So it is a very profitable product.

When combined with stock picking, this could potentially aid investors achieve their long-term financial goals.