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Pros Dump ‘Balanced’ Approach

Is the 60/40 portfolio dead? Is it dying?

Or does it just have a really bad cold?

Ankur Patil / Shutterstock.com

For as long as anyone can remember, the standard portfolio has been considered 60% stocks, 40% bonds. That’s what you’ll get in a typical balanced fund, and it’s where most money managers start when they think about constructing a portfolio.

Recently I wrote about emerging research which is starting to call that into question (See Why a ‘Balanced’ Portfolio May Not Work. In particular, I pointed out that there have been significant periods of time, even in the last eighty years, when a rebalanced 60/40 portfolio didn’t work. It didn’t help you in the Great Depression, and it didn’t help you in the 1970s. There are no guarantees it will help you today.

Now a new survey says a surprising number of financial advisers are starting to think the same thing. (I take no credit for this).

Forty percent of those polled say they no longer believe 60/40 offers the best way to pursue return and manage risk. Just 22% remain big fans of the traditional portfolio. Fewer than one in four. The survey of 163 advisers at 150 firms, managing a total of $670 billion, was undertaken by fund management company Natixis, which has been embracing alternative strategy funds.

David Guinta, head of Natixis Global Associates, says the turmoil of the past twelve years has shaken people’s faith. He says advisers are asking, “How do I keep clients invested for the long term, and how do I keep them through the ups and downs?”

No kidding. Just look at the latest data. According to the Investment Company Institute, the mutual fund trade organization, investors are bailing out of the market again — now that it’s falling. They were selling aggressively last fall, when share prices were down. Then when markets rallied in the New Year they eased up, and even, briefly, started buying.  As ever, retail investors want to buy when the market is up and sell when it’s down.

It’s another good argument for throwing some funds into the mix that zig when the market zags, so long as they do what you expect and you don’t pay much in fees. That may include precious metals, commodities, hedged strategies and long-term Treasury bonds.


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