The 60 – 40 Portfolio is Dead
By Jack Freedman on June 11, 2025
The traditional 60/40 portfolio is dead! The CEO of the biggest asset manager in the world thinks it and we have been thinking it for years. Before we discuss what can be changed to help enhance returns and diversify for lower volatility, let’s remember what the 60/40 is and why it was introduced in the first place.
Traditionally, when the stock market is performing well, the Federal Reserve (the central bank) will increase interest rates. By doing so, borrowing becomes more expensive for corporations and consumers. Growth is controlled in order to manage inflation; If companies grow too much, inflation causes the prices of goods and services to increase. Conversely, if interest rates are decreased that would stimulate the economy, making borrowing cheaper and getting money into the hands of consumers and companies. In a growing economy, you could own stocks that do well as the economy grows but if you own bonds, they may pay less with interest rates being lower. On the other hand, in a slowing economy your stocks may not do as well but your bonds will pay more because interest rates are higher. The Federal Reserve is known as the central bank because it controls monetary policy with the interest of the United States as its priority.
One of the biggest arguments for diversifying your portfolio into a split of 60% equities and 40% bonds was to dampen volatility. When the stock market is growing, your stocks outperform your bonds. In a slowing economy, your bonds may outperform the stocks and therefore, sacrifice on the upside to save on the downside. However, a new concept has been introduced that we started introducing to clients over a decade ago. Larry Fink, CEO of Blackrock, recently wrote about the new 50/30/20 portfolio which includes 50% stocks, 30% bonds, and 20% private alternative investments. The term alternative investment is new to many folks and we published a blog recently, illustrating the different types. In summary, including them in your portfolio can provide further diversification, lower volatility, and increased returns as seen in the chart below.
Chart as of February 28th 2025
So far, 2025 has been an extremely volatile year with stocks having a high correlation with bonds. Thus, the 60/40 portfolio is not providing the balance of returns that were expected. In these types of situation, we have looked to alternative investments which have generally captured lower correlations to public stocks and bonds with different return profiles.
It is prudent to start to learn about alternative investments. Ask your advisors which investments may be right for you.
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