economy
How to update your 60/40 with a 'total portfolio approach' to navigate volatility
The total portfolio approach doesn't abandon the framework of the 60/40, but instead buckets the assets by risk.
TL;DR
- The traditional 60/40 portfolio's effectiveness is under debate following poor performance in 2022.
- The 'total portfolio approach' (TPA) categorizes assets by risk rather than traditional asset classes.
- TPA aims to find a balance between returns and risk, not necessarily to boost returns.
- The 'growth sleeve' can include stocks, high-yield bonds, and private credit, linked to economic growth.
- The 'stability sleeve' includes assets like short-term bonds and TIPS to protect against market downturns.
- TPA makes portfolio behavior more predictable, helping investors remain invested during difficult periods.
- Investors must be aware that TPA relies on assumptions about asset behavior and past performance is not indicative of future results.