Tuesday, 28 May 2024 10:12

Is the 60/40 portfolio outdated?

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What is the best way to manage a portfolio in an era with less structural disinflation, and how can you improve upon the 60/40 in the current environment 

 

 The traditional 60/40 portfolio, consisting of 60% stocks and 40% bonds, has long been a benchmark, balancing growth from stocks with stability from bonds. However, the historical success of this model relies on a period of declining interest rates and favorable economic conditions in the U.S., which may not persist in the future. 

 

As interest rates stop declining and inflation potentially rises, the performance of the 60/40 portfolio is expected to be less impressive, especially during high inflation periods when energy and commodities tend to outperform. To better manage portfolios in this new environment, it’s advisable to diversify beyond the 60/40 mix by including assets like commodities, real estate, and cash equivalents to hedge against inflation and provide more stability during economic shifts.


Finsum: We have seen an increased correlation between stocks and bonds in the most recent years suggesting alternative diversification to manage volatility. 

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