SPY - A More Balanced Portfolio Model

2024-04-23 06:15:47 ET

Summary

• The traditional 60/40 portfolio, consisting of 60% stocks and 40% bonds, may not perform as well in the future due to changing market conditions.
• The 60/40 portfolio is based on assumptions that may not hold true anymore, such as declining interest rates and the outperformance of the US stock market.
• Inflation and energy/commodity price cycles have historically negatively impacted the 60/40 portfolio, highlighting the need for diversification and exposure to assets like commodities and hard monies.

This article focuses on portfolio management in an era of less structural disinflation, and more broadly how a portfolio can be improved relative to the basic 60/40 portfolio.

The 60/40 Portfolio

The benchmark portfolio concept that many investors use is the 60/40 portfolio, which refers to 60% stocks ( SPY ) and 40% bonds ( BND ). Younger investors might start with a higher stock allocation to increase expected returns, and older investors might dial the stock allocation lower to decrease expected volatility, but either way, stocks and bonds represent the two primary components of the popular portfolio....

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