What the professionals are saying now
While it’s not a universal opinion, analysts from major firms including Bank of America, Morgan Stanley and J.P. Morgan 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 (interest rates) today are minuscule compared to the yields of yesteryear.
For example, the return on a 10-year Treasury note reached a high of 15.8% back in 1981. By the end of the decade, it had fallen to 9.5%. It’s currently hovering around 1.3% — 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. And, some are going beyond stocks in search of higher growth potential that can pick up more of the slack.
Alternative investments to consider
Thanks in part to advancements in technology, the average investor has access to far more options today.
Here are four ways to inject more diversity into your portfolio, beyond simple stocks and bonds:
Exchange-traded funds, or ETFs, combine the convenience of stocks with the diversification and reduced volatility 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.
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 front door without having to fork over your life savings or commit to becoming a landlord.
With as little money as you want to invest, you can help fund the purchase of commercial real estate developments and then reap the profits. That might even put you on the path to buying your own home.
For the daring (and wealthier) investor, hedge funds can offer both diversification and greater returns.
These funds are known for using unconventional and risky investing strategies that don’t align closely with the stock market. They often invest in other alternative assets, 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.
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 more than $42,000. Meanwhile, legendary value 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.
Fine art as an investment
Stocks can be volatile, cryptos make big swings to either side, and even gold is not immune to the market’s ups and downs.
That’s why if you are looking for the ultimate hedge, it could be worthwhile to check out a real, but overlooked asset: fine art.
Contemporary artwork has outperformed the S&P 500 by a commanding 174% over the past 25 years, according to the Citi Global Art Market chart.
And it’s becoming a popular way to diversify because it’s a real physical asset with little correlation to the stock market.
On a scale of -1 to +1, with 0 representing no link at all, Citi found the correlation between contemporary art and the S&P 500 was just 0.12 during the past 25 years.
Earlier this year, Bank of America investment chief Michael Harnett singled out artwork as a sharp way to outperform over the next decade — due largely to the asset’s track record as an inflation hedge.
Investing in art by the likes of Banksy and Andy Warhol used to be an option only for the ultrarich. But with a new investing platform, you can invest in iconic artworks just like Jeff Bezos and Bill Gates do.