Advisers eighty-sixing 60/40 portfolio allocation: Survey

Traditional investment strategy seen as old school; value of buy-and-hold also questioned

May 16, 2012 @ 3:16 pm

By Liz Skinner

Financial advisers no longer sing the praises of asset allocation models that use 60% stocks and 40% bonds to seek returns and balance investment risks. Indeed, according to a new survey, advisers want new methods for portfolio construction.

About half of the 163 advisers who responded to the survey said they are ambivalent about the benefits of the traditional 60/40 mix. In fact, 40% said flat-out that they believe the strategy is no longer the best way to achieve performance and manage risk.

Barely one in five of the advisers surveyed said they believe the 60/40 strategy is still the best method. “Our research confirms that financial advisers are questioning the merits of time-honored portfolio construction strategies and looking for new solutions,” said John T. Hailer, chief executive of Natixis Global Asset Management.

Many respondents — 63% — said they either don't believe in or aren't sure of the value of long-term buy-and-hold strategies, according to the study, released by Natixis on Wednesday.

About 40% of the advisers said new asset allocation models and portfolio construction methods are needed, while only a little more than 20% said they favor what they're using now.

Financial adviser Neal Frankle of Wealth Resources Group said the 60/40 asset allocation method can't be used the same way it has been for the past 30 years.

When he relies on it, he works with a dynamic portfolio of stocks, and on the fixed income side, he has switched to all short- or medium-term bonds.

The biggest allocation shift he's made with clients is to increasingly add physical real estate as an alternative asset for some clients, he said.

“Real estate, for the right client, is the right place now because prices are low and it can produce an income stream,” he said.


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