Why the 60/40 Portfolio is Outdated—and What’s Next

Remember the trusty old Nokia phones and how indestructible they were? My old Nokia 3310 is still intact, but sadly, it’s no longer relevant in a world dominated by smartphones.

The 60/40 investment strategy—a portfolio allocation where 60% is invested in stocks for growth and 40% in bonds for stability—is going through a similar phase.

It certainly had its glory days. For decades, the 60/40 portfolio was the gold standard for balanced investing, helping generations of investors grow their wealth while mitigating risks. Stocks provided the growth potential, and bonds acted as a cushion during market downturns. But as the world changes, so does the way we invest.

Is it time to trade in this classic approach for something more aligned with today’s market realities? Let’s find out.

 

1. Why the 60/40 portfolio is losing relevance

By and large, stocks and bonds generally have an inverse relationship, where if the price of one rises, the other one falls. But things have changed and they’ve become more unpredictable. Persistent inflation, rising bond yields, and an increasingly volatile market have thrown this balance out of whack.

In 2022, both stocks and bonds fell, which saw many of our portfolios bleeding red.

Also, modern investors today want more. With markets behaving erratically, people want more diversification and assets that don’t move in lockstep with the stock market. They’re asking for uncorrelated returns—investments that won’t tank just because the market does.

 

2. What’s next? The rise of private markets and alternatives

If you’ve been relying on the traditional stocks-and-bonds approach, it’s time to consider what’s waiting beyond the public markets: private markets and alternative investments. Why? Because the investment landscape has shifted, and these alternatives are no longer just “nice-to-haves”—they’re becoming must-haves.

Private markets and alternative investments are playing an increasingly critical role in modern portfolios. They offer opportunities for diversification and the potential for higher returns, helping investors navigate today’s unpredictable markets more effectively.

For instance, did you know there are about 5 times more private companies with LTM (Last Twelve Months) revenue > $100M than there are public companies? 

Compounding the issue, the number of public companies in the U.S. has been shrinking over the past two decades. While IPOs make headlines, more companies are choosing to stay private, allowing them to grow without the pressures of quarterly earnings reports.

The outlook for public markets isn’t particularly promising, either. According to projections by Goldman Sachs, the S&P 500’s returns over the next decade are expected to fall below their historical average. This means public markets may no longer deliver the returns investors need to meet their goals, whether that’s building wealth or generating income.

That’s a massive pool of opportunities that investors relying solely on public markets are missing out on.

Private markets, on the other hand, offer compelling alternatives. Historically, they have outperformed public markets, particularly for long-term investors. This makes them increasingly essential for those aiming to achieve their desired returns or income distributions.

The case for alternatives becomes even stronger when you consider recent market dynamics. Stocks and bonds have faced correlated downturns, meaning they no longer balance each other out as they once did.

Enter private markets and alternative investments. These assets are less correlated with public markets, providing a hedge against market volatility and economic uncertainty. By incorporating them into your portfolio, you can enhance its resilience and be better prepared for whatever the market throws your way.

 

3. So, why weren’t more people investing in these?

Here’s the thing—private markets weren’t always accessible. Traditionally, they were reserved for ultra-high-net-worth (UHNW) individuals and institutions, thanks to hefty minimum investments and complex processes. 

Now, platforms like ADDX are levelling the investment playing field. This digital wealth platform enables accredited investors to tap into private market and alternative investments without needing to be ultra-wealthy. With a minimum investment starting at just $5,000, the barriers are coming down.

What’s more, investors can now access open-ended funds that offer flexibility, allowing subscriptions or redemptions on a regular basis—monthly or quarterly, depending on the fund. This makes private markets more accessible and convenient than ever before.

 

4. How to get started with modern portfolio diversification

Platforms like ADDX make it simple to get started. Their user-friendly app and intuitive platform are designed with beginner investors in mind, helping you take your first steps toward modern portfolio diversification with ease.

With a minimum investment of $5,000, you can begin diversifying across asset classes that align with your investment goals. You can get access to:

• Private equity: Ideal for long-term wealth growth.
• Private credit: Provides more stable income streams.
• Hedge funds: Offers differentiated asymmetric sources of return.
• Commercial paper: Cash alternative offering stability and liquidity.
• Structured products: Tailored solutions to meet specific investment needs.

Also, unlike traditional private banks or other digital platforms that charge quarterly or annual fees based on total Assets Under Advisement (AUA) or Assets Under Management (AUM), amongst other (sometimes hidden) fees, ADDX only charges a one-time fee per transaction.

 

5. Conclusion

The trusty 60/40 portfolio has had its time, but the investment landscape is evolving. The rise of private markets and alternative investments signals a shift in how diversification should be approached. In today’s volatile markets, having a more diversified strategy can help build more resilient portfolios.

If you’re looking to explore new opportunities, private markets and alternatives might be worth considering as part of your investment approach.

 

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This post was written in collaboration with ADDX. While we are financially compensated by them, we nonetheless strive to maintain our editorial integrity and review products with the same objective lens. We are committed to providing the best information in order for you to make personal financial decisions with confidence.