Bank of America says 60-40 portfolios are dead—and they're right
A new report by Bank of America Securities has been met with great fanfare in the investment business. The headline is that the conventional wisdom of investing 60% of your portfolio in stocks and 40% in bonds is no longer so wise. Since this has been THE biggest point of my writing over the past decade, I could not help but chime in.I have been barking about the hidden risks of 60-40 and other “Balanced” portfolios since my second book was published nearly a decade ago .
Fast-forward to today, and the choices for bond investors are not “good returns or great returns.” They are low positive returns or negative returns.Bank of America’s report correctly highlights the problem for bond investors. However, this part of the 60-40 portfolio problem is not new. When I started my own firm in 2012, it was based in large part on finding a way to navigate the end of a bond bull market that lasted for two generations.
The reality is that stocks have been masking the weakness in bonds for 7 years. This is not likely to be the case going forward. And, as Warren Buffet famously said, “when the tide goes out, you can see who was swimming naked.” I think a big part of the reason that the alarm bells are going off now is simple: the reality is hitting the radar. And, big financial firms don’t want to be caught, you know, lightly-clothed.
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