We have entered a new paradigm of anemic return expectations for traditional asset-allocation models. The prospects of a lost decade ahead are uncomfortably high for portfolios that are 60% invested in stocks and 40% in bonds – particularly when adjusted for inflation, which is at levels not seen since the early 1980s.
Investors have witnessed expensive stock markets and incredibly low interest rates. Seldom have we experienced both concurrently.
If the outlook for the 60/40 allocation is so lackluster, why do so many advisers and investors still cling to this security blanket of portfolios?
In my opinion, it’s because it hasn’t disappointed them…yet.
The appeal of a 60/40 portfolio is obvious. It has delivered diversification and solid risk-adjusted returns for decades. Its underlying components – stocks and bonds – are quite intuitive and easy to understand for…
