What Is the Future of the 60/40 Portfolio?

What Is the Future of the 60/40 Portfolio?

The traditional portfolio balance of stocks and bonds—known as the 60/40 mix—is “at risk of becoming obsolete as some investors predict years of underperformance by both its component parts.” This according to a recent Financial Times article.

Historically high prices of both stock and bonds are forcing savers to seek other alternatives, the article reports, signaling a “nuclear winter” for the 60/40 portfolio, long viewed as a safe mix to take advantage of economic growth (stocks) and limit volatility (bonds):

“Developments this year have prompted warnings on the outlook from many of the biggest names in the investing world,” the article notes, quoting Blackstone vice chairman Tony James’ recent prediction that stocks will suffer a “lost decade” as companies continue to navigate the coronavirus pandemic.

Given still high equity valuations and a risky environment for bonds, the article notes that investors are becoming cautious and some investment strategists have suggested alternative sources of fixed income (albeit also risky) including private equity, real estate inflation-linked bonds and dividend-paying equities.

According to JPMorgan Funds chief global strategist David Kelly, “the standard 60/40 portfolio is not very well suited for today’s financial market environment,” and investors need a “multicolored pie, that shifts away from [US] bonds and large-cap stocks” and instead adds more asset classes like foreign equities, value stocks and emerging markets assets.