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The 60/40 rule of investing is dead, experts say — it's time to get more creative

·4 min read
The 60/40 rule of investing is dead, experts say — it's time to get more creative
The 60/40 rule of investing is dead, experts say — it's time to get more creative

For decades, investors have put their financial future in the hands of ol’ reliable: the 60/40 rule.

With 60% of your money in stocks, you’ll have enough growth potential to meet your goals. And with 40% in bonds, you’ll have a stable source of income to fall back on in case your stocks don’t perform.

At least, that’s the conventional wisdom. The problem is that the investing landscape today looks completely different compared to 20 years ago, let alone 70 years ago.

What do the professionals say now?

Man looks at computer screen with charts on it, hand to his chin.
jordvdz / Twenty20

While it’s not universal, analysts from major firms like Bank of America, Morgan Stanley and JPMorgan have all proclaimed the death of the 60/40 rule in recent years.

David Kelly, chief global strategist for J.P. Morgan Asset Management, says a “plain vanilla” portfolio of 60% global equities and 40% U.S. bonds is likely to net an annual return of just 4.2% over the next 10 to 15 years.

Why? The simple explanation is that bond yields today are miniscule compared to the yields of yesteryear.

For example, the return on a 10-year Treasury note reached a high of 15.84% back in 1981. By the end of the decade, it had fallen to 9.5%. It’s currently hovering around 1.5% — not that much better than some savings accounts or certificates of deposit.

As a result, many investors are looking past bonds for other low-risk assets that still provide reasonable returns. Some are even going beyond stocks in search of higher growth potential that can pick up more of the slack.

What alternatives are out there?

Thanks in part to advancements in technology, the average investor has access to far more options today — it’s even possible to invest with only your “spare change.”

Here are five ways to inject more diversity into your portfolio, beyond simple stocks and bonds:

Farmland

Beautiful green field with rows of plants against a blue sky with mountains in the background.
rodrigodaibert / Twenty20

If it’s good enough for one of the richest men on the planet, surely it’s good enough for you.

Farmland can act as a shield against volatility — even when the economy goes through a recession, people still need to eat. And yet, there’s evidence to show you can expect better returns from farmland than bonds, gold and often the stock market.

Using a new investment platform, you can join with other investors to buy stakes in individual farms without having to run one yourself. You can get a cut from both the leasing fees and crop sales, providing you with a cash income while the value of the asset increases.

Exchange traded funds

Exchange traded funds, or ETFs, combine the convenience of stocks with the diversification and reduced risk of mutual funds.

Instead of buying into a single company, you get a share of a number of different assets, such as stocks, commodities and bonds. The typical ETF is based on a financial market index, like the S&P 500, and contains all of the individual stocks or other investments that make up the index.

ETFs can be bought and sold just like stocks and tend to have lower fees than mutual funds.

Real estate

Overhead view of suburban subdivision.
Barefoot_Traveller / Twenty20

Want to get a cut of the hot housing market right now but can’t afford to buy a property or two?

A real estate investment trust, or REIT, will allow you to get your foot in the door without having to fork over your life savings or commit to becoming a landlord.

With as little as $500, you can help fund the purchase of commercial real estate developments and then reap the profits. Who knows, that could put you on the path to buying your own home.

Hedge funds

For the daring (and wealthier) investor, hedge funds can offer both diversification and greater returns.

These institutions are known for using unconventional and risky investing strategies that don’t align closely with the stock market. They often invest in alternative assets themselves, such as private companies, distressed debt, currencies and commodities.

While hedge funds are typically only open to accredited investors, some investing apps are trying to make hedge funds more accessible to all.

Cryptocurrency

Man stands in office holding up bitcoin between thumb and forefinger to the camera.
RLTheis / Twenty20

Investing in crypto is easier than you might think — you can buy bitcoin and other digital currencies through popular investing apps — but it’s not for everyone.

Yes, some people have made a fortune off the incredible volatility, as one bitcoin is now worth tens of thousands of dollars. Meanwhile, billionaire investor Warren Buffett calls the stuff “rat poison squared,” pointing out its limited use as a form of currency.

The potential is there, but don’t invest more money than you can afford to lose in the next big swing.