For decades, financial advisors have pounded the table about the “60/40” portfolio.
The idea was simple:
- If the market was booming, your 60% allocation to stocks could grow your wealth.
- If the market was crashing, your 40% allocation to bonds would help limit your losses and provide income.
But as financial expert BlackRock just explained in its annual letter, the 60/40 strategy is dead.
Today, I’ll explain why — and reveal what to do instead.
60/40 is Dead
BlackRock is the world's largest asset management firm.
It currently manages over $10 trillion for governments, corporations, and individual investors.
Every year, its founder Larry Fink writes an annual letter about the most important trends taking shape in the world of investments.
Here’s the simple message Fink wrote about this year:
60/40 is dead.
The World Has Changed
Fink believes the world has changed. The traditional 60/40 portfolio doesn’t work anymore.
For example, look what happened in April:
When the S&P 500 crashed 10.5% during two trading days, bonds should have rallied. After all, in a bust, our allocation to bonds should help us limit our losses.
But what happened instead? Bonds sold off, too!
In other words, the 60/40 portfolio didn’t offer any insulation from volatility.
A recent study from Emory University’s Department of Finance came to a similar conclusion. It found that stocks and bonds are now moving in the same direction.
So much for the general “wisdom” that bonds provide diversification.
Assets That Define the Future
Fink is now advocating a new approach:
50/30/20
- 50% stocks.
- 30% bonds.
- And 20% private assets like startup companies.
The asset classes in this portfolio — stocks, bonds, and private assets — have lower correlations to each other. That means, at any given time, they can move in different directions. For example, if stocks and bonds zig, startups can zag.
Furthermore, such a portfolio can benefit from the higher returns that private assets offer.
As Fink explained, investors need exposure to “assets that will define the future” — including “the world’s fastest-growing private companies.”
One Tiny Change with a Huge Impact
Given this new information, what should you do? After all, making big changes to your portfolio can be scary. That’s why most investors don’t make any changes at all.
But one tiny change could have a huge impact. In fact, it could potentially double your returns.
To make this strategy work, you only need to re-allocate 6% of your portfolio. That’s just 6 cents of every dollar you have invested. So if you have a 60/40 portfolio worth $100,000, you could potentially double your portfolio’s value by re-allocating just $6,000 of it.
Here’s how it works.
Add Private Assets
To keep the math simple, let’s say a traditional 60/40 portfolio returns about 10% each year.
But now let’s add some private assets, like Larry Fink recommends.
According to research from SharesPost (an expert in private securities that was acquired by Forge), allocating 6% of your assets to startups can boost your overall returns by 67%.
And with a 67% boost, instead of earning, say, 10% a year, you’d earn 16.7% a year.
Let’s see what that difference would add up to with a hypothetical portfolio of $100,000.
Double Your Wealth with Startups
At an average return of 10% a year, in ten years, a $100,000 portfolio of stocks and bonds would grow into about $259,000.
Not bad.
But in that same timeframe, a portfolio that includes a 6% allocation to startups (just $6,000) would grow to $468,000.
So, as you can see, by allocating just a tiny amount to startups, you nearly doubled the size of your investment portfolio.
Keep in mind, these returns include the winners and the losers.
And furthermore, if you happen to invest in a startup like Facebook, Uber, or Airbnb — the type of investment that can deliver 20,000%+ returns — you could become a multi-millionaire.
Bigger Returns with Just One Tweak
As you just learned, even a tiny allocation to private investments could help you escape the perils of a 60/40 portfolio — and make your nest egg soar.
That’s why we encourage all of our readers to begin investing in startups.
To get started, take a look at our free educational resources.
For example, our free reports provide you with tips, tricks, and strategies for finding the best — and potentially, the most profitable — startup investments out there.
You can review our resources and download our reports here, for free »
Happy Investing
Best Regards,
Founder
Crowdability.com
