The stock to bond ratio of 60 to 40 is quickly falling out of favor.
The appeal of the old-line investment strategy has waned as investors move to new areas of the market to diversify, two market analysts told CNBC’s “ETF Edge” this week.
John Hollyer, Principal and Global Head of Fixed Income at Vanguard, said in an interview on Monday that 60-40 is not a “magic number”.
“The actual expected returns are no longer as high as they used to be due to the low bond yields. We have seen a secular decline in interest rates of 40 years. But equity valuations are also high,” he said.
“”[For] I think an investor who calculates things like their assets, risk tolerance and time horizon still has value for a diversified portfolio where the returns on assets may offset each other. “
As more investors invest in US large cap stocks, diversification should be paramount, said Dave Nadig, chief investment officer and director of research at ETF Trends and ETF Database, in the same “ETF Edge” interview.
“I would encourage investors to think about broader diversification,” he said, adding, “60-40 is probably not the right allocation for just anyone.”
“Most investors would probably do a good job looking at their portfolios and finding out if they really did dispel their prejudices about home ownership.” [and] I found out if they actually believe in their portfolio, whether it’s the stock end or the bond end, ”he said.
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