Why experts are abandoning the traditional investment portfolio


Low interest rates and new financial technologies are a game-changer for investors

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For years, a simple benchmark has guided investment advice: find a “60/40 balance” in your portfolio and keep it forever.

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This principle was championed by investment pioneer Jack Bogle, who founded industry heavyweight Vanguard Group and popularized index funds. According to Vanguard, the 60/40 portfolio has offered the best returns in nearly a century for people who can tolerate moderate fluctuations with their money.

But in the decades since Bogle made this portfolio famous, rules of thumb like the 60/40 portfolio have begun to fall out of favor with many financial advisors.

“If you’re doing a good job for your client, you should dig deeper,” says Tina Tehranchian, Senior Wealth Advisor and Certified Financial Planner at Assante Capital Management Ltd. in Richmond Hill, Ontario.

“And many times [the right balance] may not be the 60/40 portfolio.

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Portfolio split 60/40

The percentages in a 60/40 portfolio refer to the investor’s asset allocation: Investors place 60% of their money in riskier investments, such as stocks. The remaining 40% is invested in traditionally safe investments, such as government bonds.

This asset allocation was originally designed to help investors protect their portfolios from market volatility, while putting them in a good position to grow their money at a faster rate than inflation.

Advisors have suggested over the years that investors rebalance their portfolios every year to maintain the 60/40 split. Suppose the value of bonds had risen in the previous year – individual investors would have to reallocate some of their money to equities to ensure they find the right mix.

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Diminishing returns

For decades, financial advisors have touted it as the perfect balance, especially for a retirement portfolio.

However, current market conditions may actually be slowing your portfolio growth right now. With interest rates set to remain historically low for the next few years, a 40% investment in bonds is unlikely to outpace rising inflation, meaning those bonds will weigh on the overall performance of a wallet.

That’s not to say that bonds can’t be a valuable addition to a certain investor’s portfolio. In fact, Vanguard Canada released a report this fall suggesting that analysts aren’t ready to abandon the balanced portfolio just yet. Even with inflation as a growing concern, they are loath to dismiss this proven strategy.

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But many advisers say bonds should no longer make up nearly half of an average investor’s portfolio. They argue that investors can turn to other relatively safe bets, like blue-chip stocks and low-volatility exchange-traded funds, or ETFs. According to experts, what really matters are your financial goals.

new strategies

It’s not just the 60/40 portfolio that’s going out of style. Advisors are increasingly avoiding following strict rules in general.

With more sophisticated tools to analyze a client’s risk tolerance and to allocate a personalized portfolio, Tehranchian says these rules of thumb are simply no longer necessary.

“Nowadays we have the technology and the tools available to do a much more detailed analysis for each client,” she says. “And then, based on that more detailed analysis, we’re able to deliver a personalized portfolio that’s not a cookie-cutter portfolio like it used to be.”

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These more personalized approaches mean clients walk away with a portfolio that reflects their reality rather than an idea of ​​what their planner thinks about their life. should look like.

Which is much more efficient, given that not everyone fits the mold or expectations of their age or income bracket.

Tehranchian says she works with financially conservative 20- and 85-year-olds who strongly reject investing in fixed-income securities like bonds. Portfolios should not only reflect a person’s age – other factors like family situation, cash flow needs, estate plans, tax obligations, income and financial goals should also be taken into account.

“When you consult with a financial planner, they need to have the full picture because all of these things impact each other,” says Tehranchian. “It has to be holistic to work.”

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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