One way or another, the volatile market backdrop we are currently experiencing will start to look more familiar. But we aren’t quite there yet. The stock market has moved into uncharted territory after spending the last 14 years in the land of Quantitative Easing.
Add to that the fastest incline in interest rates we have ever seen, and now we are in a new world where no one knows what will come next. Nevertheless, the basic 60/40 model can provide balance in your portfolio whether the market is high or low. It is uncomplicated and has worked for many years. But is it still a viable investment approach?
A basic search on whether the 60/40 model still works will render mixed results. Numerous articles claim the model is dead, contending that it is outdated and no longer viable in this new era.
“The old 60/40 portfolio did the things that clients wanted, but those two asset classes alone cannot provide that anymore.” Bob Rice of Tangent Capital, said at a recent Investment News conference. “It was convenient, it was easy and it’s over.” -Brian J. O'Connor, 5-9-23
The other camp hold firm that the 60/40 is coming back from the dead and ripe for optimal performance.
“The expected annualized 10-year return of the 60/40 portfolio has increased significantly after 2022, adding to the compelling case for the 60/40 portfolio in 2023.” -Seeking Alpha, 4-13-23
One thing everyone agrees on is the fact that the 60/40 portfolios just saw one of their worst years ever as bonds and equities both declined in tandem. It is based on the knowledge that high inflation caused the correlation between equities and bonds to reach its highest in decades. The sting from that decline has far from faded, leaving many to question which way to turn now, in this new territory.
When it comes down to choosing one way or another - consider splitting the difference. Alex Shahidi (Forbes 3-9-23) suggests looking for a balance, “Consider that neutral exposure to inflation would actually be about a 50/50 split between assets biased to outperform during rising inflation and those that outperform in falling inflation, since the market surprises to the upside and downside with similar frequency.” He concludes that 60/40 is just not very well balanced because it excludes critical inflation-hedge assets.
An investor with a straight 60/40 mix could see returns on both sides. However, they could shortchange their portfolio growth by not looking to diversify further.
The time has come to consider a broader allocation of assets to achieve long-term growth with reasonable levels of risk. Consider leaving passive index investing and going towards active management. It is an opportunistic time to examine active strategies that can be customized to create a pathway to steadier returns using tailored programs.
Vineyard Global Advisors offers 12 fee-only, actively managed, including hedge and long-only investment strategies via separately managed accounts. A Separately Managed Account (SMA) is a highly customizable investment portfolio comprised of securities, including stocks, bonds, and cash owned directly by the investor.
Benefits Include:
Not sure where to start? When choosing one way or another to invest or reinvest, consider finding a partner who specializes in active management and thrives in uncertain and volatile markets.
Speak with Vineyard Global Advisors about our risk managed SMA strategies, which seek to outperform.
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