Saying it isn’t doesn’t make it true – we are in bear market territory and have been for quite some time. Despite ARK Holding’s Cathie Wood’s attempt to reverse the bottom of the current decline at the end of January 27, stocks and cryptocurrencies continue to fall as inflation continues to rise and an overheated housing market begins to falter.
So what should investors do to protect against this multi-headed dragon of a financial mess? According to Claritus.io CEO Shai Azran, diversification is essential and a review of the old 60/40 stocks to bonds ratios requires an update. That is why:
“Depending on who you ask, the 60/40 model has been debated for quite some time. As early as October, some of the biggest investment banks predicted that an era of lower returns was imminent and advised investors to prepare by recalibrating their strategy that includes expanding their portfolios overall,” Azran said.
“The 60/40 model was the gold standard from Nixon until around 9/11, but what many people forget is that between the dot-com bust and the start of quantitative easing at the end of the Great Recession, the annual returns on 60/40 Portfolios were about 2%. It really tells you something that 60/40 portfolios only started earning annual returns of 11% in an era when the Fed was literally printing money and giving it to banks to buy stocks. The model has been broken for some time,” he added, noting how T. Rowe Price CEO Sébastien Page recently made an interesting comment in an interview he did with CNBC suggesting that investors should broaden their portfolios diversifying into alternative investment vehicles such as. a portion of their traditional bond holdings of 40%.
“Page suggested that investors reformulate that 40% to include 12% liquid and illiquid alternatives, commodities and more,” Azran said. “And I agree with him when he says, ‘Alternatives have been overlooked for too long.'” Basically, if you want growth, you have to invest in multiple asset classes – have multiple streams of income – all flowing into the portfolio yours at the same time.”
Azran notes that this new paradigm doesn’t mean that traditional assets like bonds aren’t still helping investors protect their position in a volatile market. And with the price of assets like cryptocurrencies at lows not seen in years, the high-risk reputation that the entire asset class is plagued with is softening slightly as wallet holders double down.
“Although the average portfolios of Claritus users are far from the classic 60/40 split, we have seen bond positions within the portfolio almost double in the last six months – despite only making up a small portion of the portfolio,” he added. .
So with that in mind, it seems that investors are diversifying their portfolios into new asset classes while buying bonds and dealing in discounted crypto. Although no investment strategy is wrong, alternatives are shaping up to be a good option as the current downturn continues and leaders and policymakers work to mitigate the current economic issues at hand.
Natalia Velez Lopera is a Colombian writer living and reporting in Colombia.
