For decades, financial advisers sold the same allocation: 60% stocks, 40% bonds. It was clean. It was simple. It worked.
Until it didn’t.
In 2022, both sides of that portfolio got crushed at the same time. Stocks fell. Bonds fell. The supposed hedge didn’t hedge. And if you go back further, the financial crisis told a version of the same story.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
CLICK FOR FREE ISSUE
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more – straight to your e-mail.
Profit and prosper with the best of expert advice – straight to your e-mail.
The 60/40 wasn’t built for this environment. It was built for one that no longer exists.
The math has changed
Think about why someone would put 40% of their wealth into bonds. In the late ’70s and ’80s, you could buy a 30-year Treasury yielding 15%. A piece of paper backed by the United States government paying you 15% a year. Of course you’d hold that. Anyone would.
That product doesn’t exist anymore.
Interest rates fell for 40 straight years. They came back up recently, but a Treasury still pays you somewhere around 4%.
Meanwhile, the state that’s backing that paper isn’t what it was four decades ago. U.S. debt was less than a trillion dollars then. It’s north of $36 trillion now. Ask yourself how confident you are in the full faith and credit of a government carrying that balance sheet.
The yield has diminished. The security behind it has diminished. And the correlation advantage — bonds zigging when stocks zag — has broken down. Stock and bond markets move together now more often than not.
The 40% side of the 60/40 portfolio can no longer deliver its two core promises: A competitive return and real diversification.
So why are people still running it? Because it’s easy to sell. And because old habits die hard.
The investment universe got bigger in those same 40 years.
When the 60/40 became standard, you had stocks and you had bonds. Those were the options. Today, you have access to asset classes that used to be reserved for endowments and family offices.
Private equity. Real estate. Venture. And you don’t need $5 million to get in the door.
You can buy private equity exposure through a public ETF. Tech-focused PE, real estate PE, broad diversified PE. Some for as little as $500. Twenty years ago, none of this was available unless you had eight figures and the right connections. Most individual investors haven’t caught up yet.
Where I keep my wealth
I’m not going to tell you what to do with your money. But I’ll tell you what I do with mine.
I run closer to 40% private markets, 40% public equities, 20% split across crypto, gold and cash. No bonds. Zero.
On the public equity side, I start and stop with the S&P 500. The idea of being a stock picker is folly at best. You’re competing against algorithms and institutions with more information and faster execution than you’ll ever have. Buy the index. Let the market do its job.
On the private side, some of these PE vehicles trade as ETFs now. Diversification and liquidity. That used to be a trade-off. Now it doesn’t need to be.
On cash and gold, they’re the ballast. Money markets are yielding roughly the same as bonds right now. So the argument for locking capital into a bond fund when you can park it in cash at a similar rate and keep full liquidity? I don’t see it.
Gold is the oldest store of value on earth. I don’t need it to grow. I need it to sit there when everything else gets volatile.
A word on bitcoin
Crypto may seem like the black sheep in my allocation, so here’s my reasoning.
I start and stop with bitcoin. Bitcoin is a roughly $2 trillion asset that the market still can’t agree on. One camp says it’s the greatest Ponzi scheme ever built — the greater fool theory playing out in real time.
The other camp says it’s the reserve currency of the future. When the dollar fades, and every fiat currency eventually does, it’s not going to be replaced by the yen or the euro. It’s going to be replaced by something digital. Bitcoin is best positioned to be that thing.
Over almost 20 years, the price has oscillated between those two stories. It’s been at $300. It’s been above $100,000. If I knew where bitcoin would land, I wouldn’t be writing about it. But a small allocation, sized to what you can stomach losing entirely, is an asymmetric bet.
The downside is bounded. The upside, if the reserve-currency thesis plays out, is not.
The point
You don’t have to run my allocation. But there’s no reason to keep running a model from an era when Treasuries paid 15% and private equity required a country club membership. Times change, and so should your strategy.
Related Content
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
