In 2022, the standard 60/40 portfolio (60% stocks and 40% bonds) did not provide investors with the expected benefits of diversification. A historic inflation surprise, followed by rapid central bank hiking, drove both stock and bond valuations to the downside.
This year, investor allocations appear ripe for rebalancing from a 60/40 starting point due to several potential factors, including, but not limited to portfolio drift over the last economic cycle, correlations restored to historical norms, and recent price action.
Most importantly, after a decade of low and stable rates and inflation, we may be entering a new macroeconomic regime of moderate rates and inflation. In this environment, investors may benefit from a different set of tools than those that succeeded in the last cycle.
In this piece, we make the case for rebalancing stocks and bonds, reallocating to shorter duration instruments, and further diversifying within each asset class.
All investments are subject to market risk, including possible loss of principal. Diversification cannot assure a profit or protect against loss in a declining market.
This material contains the opinions of its authors but not necessarily those of New York Life Investments or its affiliates. It is distributed for informational purposes only and is not intended to constitute the giving of advice or the making of any recommendation to purchase a product. The opinions expressed herein are subject to change without notice. The investments or strategies presented are not appropriate for every investor and do not take into account the investment objectives or financial needs of particular investors. Individuals should consult with their financial professional before implementing any planning strategies.
“New York Life Investments” is both a service mark, and the common trade name, of certain investment advisors affiliated with New York Life Insurance Company.