For decades now, it’s been commonly accepted that a portfolio of 60% stocks and 40% bonds (aka a ‘60/40’ portfolio) is a good option for many investors.
The idea behind this portfolio is that if the stock market falls, bonds should provide a cushion, smoothing out overall returns.
Not everyone agrees the 60/40 portfolio is the best approach to investing today however, and I was interested to hear BlackRock CEO Larry Fink’s take on the matter earlier this month.
According to Fink, long-term investors should be looking at investing 80% of their portfolios in stocks or hard assets.
We’re living longer
Speaking on CNBC, Fink made a couple of really interesting points in relation to investing and asset allocation.
First, he noted that, thanks to advances in medical technology (eg weight-loss drugs like Ozempic and Wegovy), we are all likely to live longer.
So a risk is that people could run out of money if they’re not investing for growth (bonds are not growth assets).
“I think this is going to be the biggest societal risk,” he said.
It’s worth noting that when the 60/40 portfolio was developed (in the early 1960s), life expectancy was a lot lower than it is today.
Incredible investment opportunities
Secondly, Fink highlighted some of the incredible opportunities in the stock market today including:
- Artificial intelligence (AI) and robotics
- US onshoring
- Medical discoveries that can extend life
Fink’s point here was that, while there is a lot of uncertainty and fear from issues such as rising interest rates and geopolitical conflict, there’s a lot to be excited about from a long-term perspective.
Putting this all together, his view was that long-term investors – including those over 50 – should have a large proportion of their money in the stock market or hard assets (hard assets include land, property, infrastructure, and commodities) today.
“For a long-term investor, with a long-term view, who can tolerate market volatility, you should be at least 80% in equities or hard assets,” he said.
My view
Now, it could be argued that Fink has a biased view. That’s because he’s the CEO of one of the largest investment companies on the planet (BlackRock owns iShares). It’s in his interests for investors to put their money into the stock market.
But I think he makes some great points. Ultimately, many of us could be set to live well into our 90s, thanks to advances in medical technology. This means retirement could last 30 or 40 years. So growth of capital will be crucial.
And I agree with him on the opportunities in the market today. Given the pace at which technology is moving, it’s an exciting time to be an investor. Just look at the gains semiconductor company Nvidia has delivered recently on the back of demand for its AI chips. Over the last year, it has risen about 290%.
Of course, not everyone has the risk tolerance to invest a large proportion of their wealth in growth assets. Ultimately, money that’s going to be needed in the short term should not be invested in the stock market. “You gotta have a 10-20 year view,” said Fink in his interview.
However, for those with long-term horizons, like myself, I think allocating a large proportion of capital into stocks or hard assets is the right move.
