The Future of Portfolio Construction: If Not 60/40, Then What? with CAIA New York

May 11, 2021

The investment industry speaks about the “60/40” portfolio so much that it is largely assumed to be the “correct” portfolio for a large number of investors. However, it describes modern asset allocation about as well as Happy Days did the 1950s or Friends the 1990s. (Great shows both – but a bit detached from the real world.) To be fair, the 60/40 portfolio can be a useful starting point to illustrate the pros and cons of additional asset classes and/or alternate portfolio construction approaches. Furthermore, it demonstrates some of the critical foundations of modern asset allocation: stocks provide a high long-term return expectation, while bonds provide diversification through negative correlation and lower volatility. Today, the asset and wealth management industry largely agrees that the 60/40 portfolio will not deliver the same outcome as it has in the past. This is forcing investors of all kinds to consider new and/or larger allocations to alternative asset classes and strategies, but that leads to a key question: if not 60/40, then what?