The Enduring Power of the 60/40 Allocation

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About This Episode

Diversification is a core principle of sound investing, but building a diversified portfolio is much easier in theory than in practice. In the recently published “2024 Diversification Landscape,” portfolio strategist Amy Arnott of Morningstar took a deep dive into the diversification potential of several major asset classes. As advisors build their clients’ portfolios, there are a few lessons from this research. First, it is impossible to predict which asset class will do well in any given year. Holding a variety of asset classes helps guard against being overly exposed to an area that falls out of favor. Second, while the correlation between stocks and bonds has increased, bonds still provide relatively strong diversification benefits. This means that the classic 60/40 portfolio is tough to beat, having produced returns of about 18% in 2023. Third, the asset classes with the strongest diversification benefits may come as a surprise to some advisors. Real estate is a questionable diversifier despite its popularity, while cash is a strong diversifier.

About Our Guest

Amy C. Arnott, CFA, is a portfolio strategist for Morningstar.

In her role as portfolio strategist, Amy writes about portfolio construction, asset allocation, retirement planning, and other personal finance topics. She also does research on a wide range of asset classes and how investors and financial advisors can use them to build better portfolios.

Before rejoining Morningstar in 2019, Arnott was an associate wealth advisor at Buckingham Strategic Wealth, where she was responsible for portfolio analysis, asset allocation, rebalancing, and trade recommendations. Arnott originally joined Morningstar as a mutual fund analyst in 1991 and held a variety of leadership roles in investment research, corporate finance, and strategy from 1991 to 2017.

Arnott holds a bachelor’s degree with honors in English and French from the University of Wisconsin – Madison. She also holds the Chartered Financial Analyst® designation.

Show Notes

Here are some links to learn more about Amy and her research:

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