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Should You Move Beyond the 60/40 Asset Mix?

The 60/40 asset mix has been a staple of portfolio management for decades. With the 2008 financial crisis sending interest rates to near zero, the strategy benefited from a rise in both stocks and bonds. The problem is that yields ran out of room to fall, and now rising inflation threatens to hurt both stocks and bonds.

Let’s take a closer look at these problems and how alternative investments could augment the 60/40 asset mix.

Be sure to check our Portfolio Management Channel to learn more about different portfolio rebalancing strategies.

Problems With the 60/40 Mix

Many investors and advisors use a 60/40 portfolio—60% stocks and 40% bonds—as a starting point for their portfolios. Depending on the investor’s time horizon, financial goals, risk tolerance, and other factors, they change these allocations over time. For instance, they may increase bond allocations to reduce risk as retirement approaches.

The idea behind the 60/40 asset mix is that bonds tend to increase in value when equities decrease. That’s because the Federal Reserve typically cuts interest rates in response to a recession, helping to spur business activity and boost bond prices. And, when interest rates are rising, equities are usually doing pretty well.

Unfortunately, inflation has thrown a wrench into these dynamics for the first time since the 1970s. Rising inflation is forcing the Federal Reserve to increase interest rates to maintain pricing stability, regardless of the economy’s health. And in today’s case, the economy is clearly in a fragile condition, with stocks remaining in a bear market.

The 40/30/30 Alternative

Some investors have shifted to a 40/30/30 portfolio, including 40% stocks, 30% bonds, and 30% alternative investments. These alternative investments might include commodities, real estate, or even collectibles, like fine wine or fine art. The only requirement is that they be non-correlated with the stock and bond markets.

For example, the Robo-advisor Wealthfront invests a portion of its clients’ capital in the Vanguard Real Estate ETF (VNQ), which is among its best-performing holdings over the past two years. Other advisors prefer to hold positions in commodity ETFs, including gold or other precious metals, to hedge against rising interest rates.

Some other popular alternative investment ETFs include:


  • VanEck Inflation Allocation ETF (RAAX) – The VanEck Inflation Allocation ETF is an actively-managed ETF that invests in real estate, commodities, natural resources, or infrastructure. The goal is to maximize long-term total returns on an inflation-adjusted basis, making it an excellent hedge against inflation.
  • Core Alternative ETF (CCOR) – The Core Alternative ETF holds dividend-paying large-cap stocks with an option collar overlay to provide steady cash flow and a low correlation to the broader U.S. equity markets. However, a 1.09% expense ratio makes it pricier than many passively-managed funds.
  • Invesco Active U.S. Real Estate ETF (PSR) – The ETF uses quantitative and statistical metrics to identify attractive real estate securities and manage risk. The fund offers an attractive 2.75% distribution rate and a reasonable expense ratio of 0.35%.
  • First Trust Managed Futures Strategy Fund (FMF) – This actively-managed fund holds 50% commodities futures, 25% currency futures, and 25% equity futures. As a result, investors have access to diversified exposure and a low correlation to equities and bonds.

In addition to ETF vehicles, investors may want to consider more direct exposure to alternative investments through platforms like YieldStreet. These platforms use Regulation CF, Regulation A, and Regulation D offerings to provide investors with opportunities to invest in everything from fine art to sports car loan portfolios.

The Bottom Line

The 60/40 asset mix worked well for years thanks to low interest rates, but inflation is throwing a wrench into the strategy. Adding alternative investments to the mix can diversify your returns and protect your portfolio against declining stocks and bonds. Fortunately, several ETFs fit the bill, making it easier than ever to diversify.

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Jul 26, 2022