Lede

LPL Financial's Barry Gilbert suggests it's time to reconsider the 60/40 portfolio, a strategy of 60% stocks and 40% bonds, as bonds are looking more likely to return to their historical role as a portfolio diversifier.

Summary

• Tuesday's stock setup is uncertain with growing consensus for another Fed rate hike next month.
• Another interest-rate rise may encourage more investors into money-market funds.
• LPL Financial's asset allocation strategist Barry Gilbert says it's time to reconsider the 60/40 investment strategy.
• The 60/40 portfolio of 60% stocks and 40% bonds is a sound foundation for a diversified portfolio, both tactically and strategically.
• While 2022 saw a down market for equities, bonds failed to play their traditional role as a portfolio diversifier, causing concerns for the 60/40.
• The fourth quarter of 2022 and the first quarter of 2023 weren't spectacular for the 60/40, but it has been on solid footing the last two quarters.
• Bonds are starting to look brighter with higher starting yields, a Federal Reserve likely near the end of its rate hiking campaign, and inflation coming back down.
• LPL's long-term stock and bond forecasts indicate improvement from last year to 2023.
• Wary investors may still not be ready to fully embrace the 60/40, but there are ways to better diversify a portfolio beyond the traditional 60/40.
• Gilbert believes the equity side is uncertain, but he does not anticipate a steeper downturn and doesn't think markets will overreact to a modest one.
• Alternative investments were effective hedges against losses in 2022, which investors can sometimes forget when the 60/40 is on a roll.