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Can a 60-40 Portfolio Still Produce Solid Returns?

July 5, 2017

The standard 60% stocks and 40% bonds portfolio will produce subpar returns over the next decade, says one fintech executive, Financial Advisor magazine writes. In fact, that allocation will not even beat some savings accounts.

Such a split has yielded 4.9% returns net inflation year to date though May 31, according to Jim Masturzo, senior vice president of asset allocation for web tool provider Research Affiliates, Financial Advisor magazine writes. The Bloomberg Barclays U.S. Aggregate Bond Index has delivered 1.2% while U.S. large-cap stocks have yielded 7.4% — but history suggests that’s not likely to continue, he said in a webcast last week, according to the publication.

Research Affiliates estimates the S&P 500 will post annual dividend yields of 2% while long-term earnings growth will be 1.3% over the next decade, Financial Advisor magazine writes. But at the same time, the S&P 500 is projected to drop 2.8% annually in valuation, according to Research Affiliates. The 0.5% of annual growth in large caps will not even keep pace with the 1% or more offered through online savings accounts from firms such as Ally and Synchrony and Aspiration’s checking accounts, Financial Advisor writes.

Meanwhile, there’s only a 1% chance that a 60-40 stocks and bonds portfolio will deliver real returns of 5% or more in the next 10 years, according to Research Affiliates.

To get those sorts of returns advisors shouldn’t just increase volatility tolerance, according to Masturzo. Even a 14% increase in volatility in a 60-40 portfolio wouldn’t accomplish 5% returns, according to Research Affiliates’ estimates. Instead, advisors should look outside the mainstream asset classes and make sure the products aren’t too highly correlated, according to Masturzo. He suggests commodities, credit markets, real estate investment trusts, private placements and foreign markets. Masturzo also believes advisors should consider active strategies.

By Alex Padalka
  • To read the Financial Advisor article cited in this story, click here.