A classic and widely touted investment strategy looks poised to deliver meager returns for investors in the coming years. Forecasters at Bank of America said they think the classic 60/40 portfolio — an investment portfolio split between 60% stocks and 40% bonds — was likely headed for a yearslong stretch of weak performance. The bank predicted the classic portfolio mix would return less than 1% next year after accounting for inflation, and that the portfolio would deliver a real loss of 0.1% over the next ...

Core Insights - The 60/40 investment strategy, rooted in Harry Markowitz's modern portfolio theory, advocates for a mix of 60% equities and 40% fixed-income securities to balance risk and return [1][2][3] Historical Context - The 60/40 portfolio gained popularity in the early 1990s, becoming a standard interpretation of modern portfolio theory, appealing to both individual and institutional investors [3] - Historical analysis by Morningstar indicates that the 60/40 portfolio has been less painful during market downturns compared to equities alone, particularly during the Great Depression and the Lost Decade of the 2000s [4][5] Recent Developments - The year 2022 marked a significant shift as both equities and bonds faced simultaneous declines due to geopolitical tensions from Russia's invasion of Ukraine and supply chain disruptions from the COVID-19 pandemic, leading to rising inflation [6] - As of September 2024, while the stock market has recovered its 2022 highs, the bond market remains underperforming due to ongoing aggressive interest rate hikes by the Federal Reserve that began in March 2022 [7]

Group 1 - BlackRock's CEO Larry Fink suggests updating the traditional 60/40 portfolio to a 50/30/20 allocation, reflecting changes in the investment landscape [1][4] - The traditional 60/40 portfolio consists of 60% stocks and 40% bonds, which can be easily managed with just two ETFs and two trades annually [2][3] - Fink's updated allocation includes 50% in stocks, 30% in bonds, and 20% in alternative assets such as private equity, real estate, and infrastructure [4][8] Group 2 - The new asset classes proposed by Fink are seen as differentiated enough to warrant inclusion in a modern portfolio, acknowledging the evolution of investment opportunities [4][5] - Suggested ETFs for real estate and infrastructure include Vanguard Real Estate Index ETF with an expense ratio of 0.13% and SPDR S&P Global Infrastructure ETF with an expense ratio of 0.4% [6][7] - The shift to a 50/30/20 allocation is not considered radical, as it merely reallocates a small percentage from bonds and stocks to new asset categories [8][9]