Following a year in which most time tested investment strategies failed miserably, Blackrock finally accepted that the 60/40 model which has been a bedrock of most asset management firms, financial advisors and 401K plans, has suffered the worst year since the financial crisis of 2008 and that the structure is outdated and can no longer be recommended as go-to plan for investors.

The cookie cutter approach of recommending 60/40 split arose from the simplicity of the model itself. Recommend 60/40 to most clients – 50/50 if one is conservative and 70/30 if one is aggressive. Simple as that. The rationale was that when stocks fall, bonds will provide income and when bonds fall, stocks provide growth. The model works until both stocks and bonds fall at the same time as it happened in 2022. Then, the model portfolio gets decimated.

Future Wealth’s View

The 60/40 approach to passive investing works great, until it doesn’t. The problem with cookie cutter approaches and passive investing is that markets don’t always function in line with those assumptions. If one had not moved from tech stocks into commodities like energy last year, their portfolios would have taken a pretty big hit. The Nasdaq was down 33% while the Energy ETF (VDE) was up 62%. Likewise, if one had not moved from long term bonds to inflation protected securities (TIPS) in 2022, the impact to their portfolio would be pretty substantial.

Active investing always gets a bad rap because of the fees that hedge funds and financial advisors charge. What most DIY investors don’t get is that it is no different from paying for school or swim coaching or music lessons and the like. Yes, you can do it yourself but the teachers and coaches are just that much better that the difference is material. And this becomes even more evident when past DIY methodologies don’t work anymore. 

At Future Wealth LLC, we have never been one to ascribe to the 60/40 allocation. We believe that every investor has a different risk threshold and different objective toward accumulating wealth. Which means that every single one of our investors has a strategy tailored to best fit their needs. As George Sheehan stated “Each of us is an experiment of one – observer and subject – making choices, living with them, recording the effects.”