AltX chats to AusBiz TV on the alternative to a 60/40 investment portfolio

Is it time to rethink the classic 60:40 investment portfolio?  Nick Raphaely from AltX joins AusBiz  TV to discuss whether this tried and tested allocation theory may have passed its used-by date.

Nick Raphaely discusses the construct of 60/40 split on AusBiz TV

Key Interview Talking Points:


What the 60/40 portfolio was designed for

  • Outpacing inflation is the primary goal for long-term investors
  • For many years, a large percentage of financial planners and stockbrokers put together portfolios for their clients that were composed of 60% equities and 40% bonds
  • The traditional portfolio of 60% stocks, 40% bonds was meant to solve the twin objectives of long-term capital appreciation and capital preservation
  • In rising markets, equities delivered capital appreciation
  • In falling markets, bonds provided a buffer against losses
  • This blend of asset classes did very well through the 1980s and 1990s


60/40 portfolio is overly simplistic

  • The investment mix appropriate for a 20-year-old is not the same as that of an 80-year-old
  • Warren Buffet has stated that when he dies, he wants his estate invested 90% in equities
  • Yale University Endowment Fund has 5% of its portfolio allocated to stocks and 6% in mainstream bonds of any kind, and the other 89% is allocated in other alternative sectors and asset classes. 


Why the 60/40 portfolio is no longer working

  • Bonds and equities are more correlated
    • In recent crises over the past 20 years (“Dotcom” Bust, GFC, Covid volatility), bonds have not buffeted equities in the ways historically expected
    • About 20 years ago, US Treasuries rallied 31% and the Aggregate Index rose 18% as equities fell 49% during the internet bubble collapse. At the start of the pandemic in 2020, stocks dropped 34%, but Treasuries gained just 5%
    • Both asset classes have started to move in tandem regularly
    • During recent market volatility, bonds and equities have shown a strong correlation
  • We’ve come to the end of a long bull market in bonds. Bond yields are at an all-time low, meaning there is plenty of downside in bond investing
    • The 40% which is supposed to reduce risk is now fraught with interest-rate risk
    • If interest rates rise, bonds will go down in value. Investors should question whether it makes sense to take that risk for such a small potential return
    • Bonds have a poor outlook at this point. They hardly yield anything, and if interest rates go up, you will see capital losses 
    • Over 85% of developed market government bonds are yielding below 1%
  • High valuations of stocks and low yields on bonds mean the next decade will be challenging for investors to protect the real (after-inflation) value of investments.
  • JP Morgan Asset Management has estimated that a 60:40 allocation will return just 3.7% over the next decade.


What alternatives are available

  • Today it is acknowledged that a well-diversified portfolio must include more asset classes than just stocks and bonds. A much broader approach must now be taken in order to achieve sustainable long-term growth.
  • Savvy high net worth investors know they have more choice than equities and bonds.
  • We recently surveyed our investors:
    • Almost half have been investing in secured private loans for more than 2 years
    • 56% plan to increase their investment allocation over the next 12 months
    • None plan to reduce it.
  • In the old days, a simple 60/40 breakdown made sense because it was much harder to invest in alternative, non-correlated assets.
  • These days, however, there are many ways for investors to gain exposure to a range of asset classes including corporate credit, emerging market debt, private loans, and commercial real estate lending.


Learn More 
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Bondi Junction, NSW, 2022

Phone: 1300 991 380

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