Since the 1950s, the ideal investing portfolio has consisted of traditional 60% stocks and 40% bonds, but as we have all seen recently, this may no longer be the best diversification strategy. To truly stay ahead of the curve, adding more alternative investments to the mix can help you hedge your bets and provide more security. Don’t just take our word for it - big-time investor strategists like Larry Fink think so too!
Rethinking the Future
BlackRock’s CEO, Larry Fink, published a letter to investors stating that the 60/40 portfolio is outdated. So, what’s the problem with the 60/40 portfolio? The world has changed since the 1950s when this strategy first became popular. The stock and bond markets are much more complex now, and new investment options are available that weren’t around decades ago.
He goes on to advocate for the new portfolio standard to look more like 50% stocks, 30% bonds, and 20% private assets. The private assets could be a wide range of investment options, but Fink recommends things like real estate, private credit, or infrastructure.
The New 50/30/20 Model
In this new model, Fink suggests we invest:
- 50% in stocks: This stays the same. Stocks are still a great way to grow your money over time, though they can be risky in the short term. You don’t lose until you withdraw, so sometimes you've got to ride it out!
- 30% in bonds: Bonds are still an important part of diversification.
- 20% in private assets: This is where things get interesting. Private assets include investments in things like real estate, infrastructure, and private credit (basically, lending money to businesses or individuals). These types of investments are not as easy to access as stocks and bonds, but they offer a new way to potentially grow your wealth and diversify your portfolio.
Just as you wouldn't eat only one type of food every day, you shouldn't only rely on one type of investment. By spreading your money across different asset classes—stocks, bonds, and private assets—you have a better chance of making money in different market conditions. It’s all about diversification, which means not putting all your eggs in one basket.
Worthy: Bond or Private Asset?
The answer is both. While Worthy bonds are bonds, they are also classified as an alternative, private asset. Since Worthy is a private company it is largely shielded from the volatility of the public market. This helps diversify investments while still earning an attractive return (currently a fixed 7% APY). As an added bonus, these bonds can be easily purchased at only $10 each.. The bonds also support the other two appealing assets - real estate and private credit - as the money from bond sales is primarily lent out to residential real estate developers as a form of private credit.
Alternatives like Worthy Bonds offer a compelling case for modern investors seeking stability and higher returns. Incorporating such innovative investment options can diversify and add resilience to your portfolio.
Why Private Assets Matter
You might be thinking, “Wait, private assets? That sounds expensive and complicated.” And you're right—it’s not something most people can jump into easily. Private assets are often harder to buy and sell, and they can come with higher fees and longer investment hold periods. But, as Fink points out, things are changing. Companies like Worthy and others are working to make private investments more accessible, including making them more easily available in retirement accounts.
What You Need to Know Before You Start
If you’re thinking about jumping into the world of investing, here’s some advice to get you started:
- Start Simple: Don’t feel like you need to dive into complex strategies right away. A simple 60/40 portfolio might be a great place to start as you learn the ropes of investing. Then you can “dip your toe” into investing into alternatives with a small portion of your portfolio.
- Understand Risk: Every investment has some level of risk. Stocks can go up and down quickly, and bonds will not provide outsized returns. Private assets are usually more long-term and might be harder to access, but they offer new and important ways to diversify.
Be Patient: Investing is not about getting rich quick. It's about growing your wealth slowly and steadily over time. If you invest in stocks, bonds, or private assets, be ready to hold your investments for the long haul.
Slow and Steady Wins the Investment
Larry Fink’s letter to investors is a reminder that the world of investing is always evolving. The 60/40 portfolio has been a great starting point for many people, but now we have more tools and options available to us. By considering a mix of stocks, bonds, and private assets, you might be able to build a more balanced and diversified investment strategy that works better for today’s markets.
Remember, the key to investing is not about picking the "perfect" strategy but about learning, diversifying, and being patient. Whether you stick with the 60/40 model or branch out into new types of investments, the most important thing is to start thinking about your financial future today.
