Real asset allocations in the post-60/40 environment
- June 1, 2023: Vol. 10, Number 6

Real asset allocations in the post-60/40 environment

by Benjamin Cole

For generations, the “60/40 rule” of thumb — that an investor’s portfolio should be three-fifths in equities and two-fifths in bonds — has served well enough and lent macro diversification to nest eggs. An investment plan incorporating both growth and income instruments generally provided a reasonably safe passage to building wealth while reducing risk.

To be sure, usually advisers pushed younger investors more heavily into stocks, and those heading into the golden years more into the more-secure bonds.

The stalwart 60/40 rule proved itself again after the global financial crisis of 2008, when equities soared to new heights, while interest rates plumbed historic lows. Stocks and bonds were both winners for a solid decade and more.


Then came 2019 and subsequent years of pandemic, wide-sale economic disruption, and war in Europe. Globally, central banks and national governments battled a possible economic depression by boosting money supplies and outlays, which helped to avert recessions but also brought on rising consumer prices.

Inflation provoked central banks into monetary-tightening operations, including raising interest rates.

In that scenario, equities began to wobble in 2022, while bond values declined. The long-serviceable 60/40 rule began to look like a pant-less suit of armor, that is exposed on both sides, but not in a good way.

The results in 2022 for the 60/40 plan?

“The largest stock market in the world, the S&P 500, fell by 18.1 percent in 2022, while a similar measure of the bond market [five-year U.S. Treasury note] fell by 9.4 percent. A simple 60/40 split would have lost 14.6 percent,” noted London-based accountancy Buzzacourt.

Moreover, at least through 2023, conditions may again flummox the 60/40 portfolio. Interest rates could again go higher, driving down bond values, while sucking air out of the room for stocks. Although the COVID-19 pandemic has largely passed, there are yet wars running cold and hot, while banks, tech outfits and property companies struggle with leverage.

Staying in 60/40 in 2023 may make some investors the target of a bear’s bullseye.


Where there is a want or need, Wall Street and other investor purveyors are sure to hang out a shingle. Investors today can easily migrate into a more diverse portfolio than the old 60/40 standby.

In recent years, new investment formats have opened to a wider range of investors, and more advisers are pondering the shortcomings of the 60/40 formula, as well as the virtues of real assets.

In general, the alternatives to stock and bonds include commodities, real estate, private equity, hedge funds, venture capital, and art and collectibles.


Gold and oil are the two standbys for investors seeking exposure to commodities, and feature liquid markets offering near-instant and continuous price information.

Gold — and its cousin metal silver — are rare in the commodities world in that an investor can buy a relatively small amount directly from a reputable dealer (some online), or even local pawnshop or, indeed, from anyone selling the yellow metal.

There is no income in owning gold, and likely there are storage and transaction costs. There are also gold exchange traded funds (ETFs), some of which own bullion and mirror the market price of gold, thus allowing the investor to “own gold” with the click of a mouse and a great deal of security and modest management fees of less than 1 percent.

Gold, in general, has a negative correlation to equities, meaning it zigs when stocks zag, and so the metal does add ballast to portfolios.


Like many other commodities, oil lends itself primarily to those willing to buy oil stocks, oil funds or specialty ETFs, or play the futures markets.

The oil futures market might be likened more to gambling than investing but does offer large-scale returns. In general, oil futures contracts obligate holders to buy or sell 1,000 barrels of oil at a set price at a specified future date, and involve the possibility of large gains and losses — including losses that exceed the initial investment.

For example, suppose WTI crude is selling at $80 a barrel and the investor expects the price will hit $90 in three months’ time. The investor can obtain a futures contract for the right to buy oil at $80 a barrel in 90 days out. If oil hits $90, the investor makes $10,000 gross, minus fees, by essentially buying at $80 and selling at $90 when the contract expires. Of course, should WTI oil slip to $60, the investor loses $20,000.

However, futures markets can also be a form of conservative hedging. If the investor believes that an oil price boom is imminent, they might buy heavily into oil funds and ETFs. At the same time, the investor could go “short” in the futures markets, that is, obtain the right to sell oil at present market price six month hence. If oil prices boom, the investor will do well on his or her main holding of oil equities, while the right to sell oil at the market price expires worthless, or takes a loss. On the other hand, if oil prices slump, the hedge provides a leveraged counterbalance.


In general, “hard commodities” include natural resources that must be mined or extracted and do not perish, such as gold, rubber and oil, while “soft commodities” are agricultural products or livestock, such as corn, rice, palm oil, wheat, sugar, soybeans, chicken, eggs and pork.

For those with a streak of gambler in them, the soft commodities are often subject to boom-and-bust conditions by season, and prices can vacillate, paving the way for rapid large gains or losses.


For the financially well endowed, those able to meet minimum investment requirements starting at $250,000, private equity is a way to plunk down money off Wall Street.

By some measures, the private equities markets are huge. In 2022, more than $1.2 trillion was raised by private equity funds, and that was off 11 percent from 2021, reported McKinsey Global. But, by way of comparison, global equites and bonds markets combined are worth $218 trillion. So, private equity can still seek niche markets, in some regards.

The terms and conditions for participating in private equity vary widely from situation and shop, but investors should count on little liquidity during a long-term hold. Fee structures can require deciphering and might seem a bit rich from the investor’s point of view.

Private equity can invest in nearly any industry that looks profitable, from distressed Rust Belt industrial property to the latest promising high-tech gadgetry or software. But, in general, private equity targets the telecommunications, computer software and hardware, and biotech/healthcare segments, and seeks a controlling stake in enterprises.

As with commodities and property, private equity (especially in the particular, as opposed to the entire industry) will usually exhibit low correlations to equities. For the well-heeled and those willing to think long term, private equity can be a promising part of the portfolio.

Though it sounds like an oxymoron, the ordinary retail investor can buy shares in large publicly traded, private equity firms such as Apollo Global Management, Blackstone, The Carlyle Group and KKR.

In general, hedge funds and venture capital are out of reach, except for high-net-worth investors. There are a few public companies that invest as if they were hedge funds, such as Sculptor Capital Management.

In any event, private equity investing, and venture capital and hedge funds can offer large upsides but also tend to be risky and heavy on fees.


There is no refuting the incredible appreciation in prices in the artwork of many known artists, while certain collectibles have also risen in value. Art and collectibles throw off no income and are only valuable as people consider them to be valuable, and trends and tastes can come and go.

For example, William-Adolphe Bouguereau was a 19th-century French painter considered peerless in his day and feted by millionaires and art salons. His work fell out of favor in the 20th century, and his name became known only to art history students and others in the art trade. Various attempts have been made to “rehabilitate” Bouguereau with mixed results.

What may be worth noting is that, to date, the highest prices paid for art have largely been for Western artists such as da Vinci, Warhol, van Gogh and Willem de Kooning. A rare exception was the 19th and 20th century Chinese artist Qi Baishi, whose Twelve Landscape Screen sold for $140.8 million in 2017.

With wealth creation on a long-term trajectory higher in Asia, the subsequent evolution of leisure time and cultural appreciation is likely inevitable. The outlook for artworks of select Asian masters might be bright and learning the history of such investments a reward in itself.


The redoubtable 60/40 portfolio is still a useful rule of thumb, and a reminder that macro diversification of the investor portfolio is almost always a good idea.

Investors in troubled economic environments, such as in the present 2023 outlook of sluggish growth with higher interest rates, may find the traditional 60/40 portfolio underperforms. However, many alternative investments are risky and long term, such as real estate or private equity. Other avenues, such as art and collectibles, are challenging even for the discerning.

There are some very useful options, such as publicly traded REITs, private equity firm and gold stocks that offer investors exposure to alternative sectors and are also liquid. REITs even offer dividends.

Except for those with clear crystal balls, diversification remains a powerful builder of investors’ net worth, especially when including select excursions into alternative investments.


Benjamin Cole ( is a freelance writer based in Thailand.

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