The 60:40 Portfolio - A recipe for disaster

For decades, both advisers and investors have regarded the default portfolio for a balanced investor to be a 60:40 portfolio.

This means investing 60% of your portfolio in equities and 40% in bonds(fixed income). These bonds are typically instruments which lend money to companies (corporate bonds) and the government (gilts).

There are millions of investors out there, many with advisers, who invest in these portfolios. We consider these portfolios a recipe for disaster.

if you has invested in "low risk" gilts (lending money to the UK government) over the last 5 years, you would have lost 21.48% of your capital.

Equities are considered to be the best vehicles for long-term growth but the price you pay for them is short-term volatility, which at times can be frightening. So portfolio managers have tried to dampen this volatility by including bonds in their portfolios. A 60:40 portfolio would have 40% in bonds. What a nightmare.

We think you should embrace equities and if you want to "dampen the volatility", keep sufficient rainy day in cash instead.

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