For decades, financial advisors have pounded the table about the 60-40 strategy.
The idea was simple:
If the market was booming, your 60% allocation to stocks could help grow your wealth. And in a bust, your 40% bond allocation would help limit your losses and provide income.
But as The Wall Street Journal reported last week, this strategy “isn’t cutting it anymore.”
Today, I’ll reveal why — and even more importantly, I’ll give you an alternative.
What a Loser
The 60-40 portfolio got crushed by 17% last year. According to an analysis done by Leuthold Group, that’s its worst performance since at least 1937.
But this awful performance makes sense…
In environments where inflation and interest rates are relatively low, like they’ve been for decades, the 60-40 portfolio can work just fine.
But that’s not the environment we’re in today. We currently have high inflation and high interest rates. Furthermore, these conditions are expected to last. As Dan Villalon, global co-head of portfolio solutions at AQR Capital Management, said: “Central banks have come out and said that rates will be higher for longer. The end of that environment is nowhere near.”
That’s why the words of Michael Hartnett, Bank of America’s Chief Investment Strategist, are so sobering: “If you’re blindly relying on the old regime of 60-40, just be a little careful. This decade today, I don’t think there’s a lot in it.”
So, what are investors like you supposed to do now?
One Tiny Change with a Huge Impact
Making big changes to your portfolio can be scary.
That’s why most investors don’t make any changes at all.
But what if you could make one tiny change… that had a huge impact?
You can. In fact, with this one tiny change, you could potentially double your returns.
Let me explain.
An Almost Magical Way to Double Your Portfolio’s Value
What I’m about to tell you isn’t magic. But it sure might feel like magic.
You see, to make this strategy work, you simply need to re-allocate 6% of your overall portfolio — just 6 cents of every dollar you have invested. But this one tiny move can give you the chance to earn nearly 100% more on your money.
So if you have a 60-40 portfolio worth $100,000, you could potentially double its value, simply by re-allocating $6,000 of it.
Let me show you how it works.
The “Magic Ingredient”
To keep the math simple, let’s say a traditional 60-40 portfolio returns about 10% each year.
But now let’s add some magic: private equity. In other words, startup companies.
According to a research report from SharesPost (an expert in private securities that was recently acquired by Forge), allocating just 6% of your assets to startups can boost your portfolio’s 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 a Tiny Tweak
As you just saw, even a tiny allocation to private equity could help you escape the perils of a 60-40 portfolio and help the value of your nest egg soar.
That’s why we encourage all our readers to dive into the free educational resources Wayne and I put together for you.
These reports show you how to get started investing in the private markets. And they also provide you with tips, tricks, and strategies for finding the best — and potentially, the most profitable — startup investments out there.
You can review them and download them here, for free »
Happy investing
Best Regards,
Founder
Crowdability.com
