The Enduring Power of the 60/40 Allocation

Gaining Perspective

Diversification is a core principle of sound investing, but building a diversified portfolio is much easier in theory than in practice. In the recently published “2024 Diversification Landscape,” portfolio strategist Amy Arnott of Morningstar took a deep dive into the diversification potential of several major asset classes. As advisors build their clients’ portfolios, there are a few lessons from this research. First, it is impossible to predict which asset class will do well in any given year. Holding a variety of asset classes helps guard against being overly exposed to an area that falls out of favor. Second, while the correlation between stocks and bonds has increased, bonds still provide relatively strong diversification benefits. This means that the classic 60/40 portfolio is tough to beat, having produced returns of about 18% in 2023. Third, the asset classes with the strongest diversification benefits may come as a surprise to some advisors. Real estate is a questionable diversifier despite its popularity, while cash is a strong diversified.

Show Notes

Here are some links to learn more about Amy and her research:

• Get the full report: 2024 Diversification Landscape