While questions surround the validity of the classic portfolio consisting of 60% stocks and 40% bonds, many are considering turning to alternative investments.
The average portfolio allocation to alternatives is expected to jump 3% by 2026. Investors are looking at other ways to allocate assets as returns on stocks and bonds face the pressure of higher yields, a backdrop reminiscent of the historic 60/40 drawdown of 2022. Some even argue that the 60/40 model is outdated.
“If you look at 60/40, it’s 40-year-old technology,” Ramin Kamfar, founder and CEO of alternative asset manager Bluerock, said in an interview with InvestmentNews. “Institutions realized when you run an analysis, alternatives will make the portfolio more efficient. You get higher return with lower level of risk. So that’s what the leading institutions have been doing.”
The problem, Kamfar says, is that this solution hasn’t been available to individual investors and advisors. “Alternatives should be a big part of that allocation. It [isn’t] really the leading edges in 60/40 anymore, it’s 50/30/20, with a 20% allocation toward alts.”
Jeff Schwaber, CEO of Bluerock Capital Markets, said 60/40 hasn’t worked for several reasons.
“One, because there hasn’t been yield, and two, as there’s been a plethora of interest-rate hikes, the price of the underlying fixed-income security or the bond has gone down and down. So it’s been challenged,” Schwaber said.
Brad McMillan, chief investment officer and managing principal at Commonwealth, argued that 60/40 is doing well and that one or two hits shouldn’t mean the end of it.
“It has broken down over the past year or two, but nothing works all the time,” McMillan said. “The reason we got the results we did was because
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