Bad news from Morningstar.
The classic 60/40 portfolio just posted its worst stretch in 150 years.
This is a wake-up call. It shattered the illusion that bonds provide downside protection.
Today, I’ll explain what’s going on here…
And reveal a better way to build a portfolio.
60/40 Is Dead
For decades, financial advisors have pounded the table about the “60/40” portfolio.
The idea was simple:
- If the market was booming, your 60% allocation to stocks could grow your wealth.
- If the market was crashing, your 40% allocation to bonds would help limit your losses and provide income.
But according to a study Morningstar just published, over the last few years, the 60/40 portfolio posted its worst performance in a century and a half.
In fact, according to Morningstar, this is the only bear market in 150 years where a 60/40 portfolio lost more than equities alone.
Essentially, bonds haven't been behaving like the “safe-haven” hedge that investors have grown to rely on — and it's cratering their portfolios.
KKR and BlackRock Join the Chorus
Earlier this year, investing giant KKR pointed out the same thing, reporting that government bonds are no longer acting like "shock absorbers.”
And as BlackRock’s founder, Larry Fink, just explained in its annual letter, the 60/40 strategy is dead.
BlackRock is the world's largest asset management firm. It currently manages over $10 trillion for governments, corporations, and individual investors.
But now Fink thinks the world has changed. He believes the 60/40 portfolio doesn’t work anymore. For example, look what happened in April:
When the S&P 500 crashed 10.5% during two trading days, bonds should have rallied. After all, in a bust, our allocation to bonds should help us limit our losses.
But what happened instead? Bonds sold off, too!
In other words, the 60/40 portfolio didn’t offer any insulation from volatility.
A recent study from Emory University’s Department of Finance came to a similar conclusion. It found that stocks and bonds are now moving in the same direction.
This isn’t a blip. There’s been a structural change. Rising interest rates, persistent inflation, and bond-market dislocations have eroded the foundational logic behind a long-held strategy.
So much for the general “wisdom” that bonds provide diversification.
One of the most historically resilient portfolios may now be in need of serious iteration.
Assets That Define the Future
Fink is now advocating a new approach:
50/30/20:
- 50% stocks.
- 30% bonds.
- And 20% private-market assets like startup companies.
The asset classes in this portfolio — stocks, bonds, and private assets — have lower correlations to each other. That means, at any given time, they can move in different directions. For example, if stocks and bonds zig, startups can zag.
Furthermore, such a portfolio can benefit from the higher returns that private assets offer.
As Fink explained, investors need exposure to “assets that will define the future” — including “the world’s fastest-growing private companies.”
One Tiny Change with a Huge Impact
Given this new information, what should you do? After all, making big changes to your portfolio can be scary. That’s why most investors don’t make any changes at all.
But one tiny change could have a huge impact. In fact, it could potentially double your returns.
To make this strategy work, you only need to re-allocate 6% of your portfolio. That’s just 6 cents of every dollar you have invested. So if you have a 60/40 portfolio worth $100,000, you could potentially double your portfolio’s value by re-allocating just $6,000 of it.
Here’s how it works.
Add Private Assets
To keep the math simple, let’s say a traditional 60/40 portfolio returns about 10% each year.
But now let’s add some private assets, like Larry Fink recommends.
According to research from SharesPost (an expert in private securities that was acquired by Forge), allocating 6% of your assets to startups can boost your overall returns by 67%.
And with a 67% boost, instead of earning, say, 10% a year, you’d earn 16.7% a year.
Let’s see what that difference would add up to with a hypothetical portfolio of $100,000.
Double Your Wealth with Startups
At an average return of 10% a year, in ten years, a $100,000 portfolio of stocks and bonds would grow into about $259,000. Not bad.
But in that same timeframe, a portfolio that includes a 6% allocation to startups (just $6,000) would grow to $468,000.
So, as you can see, by allocating just a tiny amount to startups, you nearly doubled the size of your investment portfolio. Keep in mind, these returns include the winners and the losers.
And furthermore, if you happen to invest in a startup like Facebook, Uber, or Airbnb — the type of investment that can deliver 20,000%+ returns — you could become a multi-millionaire.
Bigger Returns with Just One Tweak
The fact that a 60/40 portfolio underperformed pure equities for the first time in 150 years isn't just surprising. It’s a wake-up call.
But as you just learned, even a tiny allocation to private investments could help you escape the perils of a 60/40 portfolio and make your nest egg soar.
That’s why we encourage all of our readers to begin investing in startups. To get started, take a look at our free educational resources.
For example, our free reports provide you with tips, tricks, and strategies for finding the best — and potentially, the most profitable — startup investments out there.
You can review our resources and download our reports here, for free »
Happy Investing
Best Regards,
Founder
Crowdability.com
