5 Reasons Why the Classic 60/40 Portfolio is History and Gold is Becoming More Important in the Portfolio
The comments below are an edited and abridged synopsis of an article by Ronni Stoeferle
The five reasons why the classic 60/40 portfolio is history and gold is becoming more important in the portfolio are: Bonds are no longer the antifragile portfolio foundation; the negative correlation of stocks and bonds is a myth; the positive correlation of bonds and equities has become a problem; the situation on the bond markets could soon become precarious; and gold is a stabilizer of the 60/40 portfolio.
“In summary, gold has largely been able to cushion stock price losses during recessions. For bonds, the classic equity diversifier, on the other hand, things look less good. High levels of debt, the zombification of the economy, and sharp bond price declines as a result of soaring interest rates not only diminish the potential of bonds as an equity corrective, but completely rob bonds of this characteristic.”
“If the relationship between equities and bonds is now actually reversed on a sustained basis, the basis of the 60/40 portfolio – namely a negative correlation between equities and bonds – would be structurally and thus longer-term removed. The fundamental question would then arise as to which asset would take the scepter from Treasuries. Gold, at any rate, would be a hot candidate. And in our opinion, it is high time to ask this question and act accordingly.”