Not the 60/40. Here is what you need in your portfolio: Bank of America
Instead of the 60/40 portfolio, investors may want to consider a 25/25/25/25 portfolio to pick up some extra returns, according to Bank of America’s Michael Hartnett. The portfolio has outperformed the traditional allocation of 60% stocks and 40% bonds so far this year, as well as last year, he told CNBC. It consists of an equal division among stocks, bonds, cash and gold. “It is … a reminder to investors that even when the equity market is doing well, having your eggs in a few baskets can do just as well, if not better,” said Hartnett, chief investment strategist at Bank of America Global Research. The strategy is ahead this year, both in the U.S. and globally. The U.S. portfolio — consisting of 25% stocks as measured by the S & P 500, 25% bonds (using the 10-year Treasury as a proxy), 25% Treasury bills and 25% gold — has gained 16% year to date, according to Bank of America. Meanwhile, a plain vanilla 60/40 is up 10%. Globally, with the MSCI All Country World Index used as a proxy for stocks and the ICE BofA Global Fixed Income Markets Index for bonds, the 25×4 portfolio is higher by 18% so far this year, versus a 13% gain for the global 60/40. It may not outperform every year, but it has essentially kept pace with the 60/40 portfolio return so far this decade, Bank of America’s analysis found. “This portfolio is definitely going to keep up with your 60/40, and actually does so probably with a better sort of risk-return attached to it,” Hartnett added. Inflation matters Hartnett proposed the 25/25/25/25 idea at the start of the decade, with the expectation that inflation and higher interest rates would be the prevailing theme. “If you’re in an environment where you’ve got Main Street inflation rising, that’s going to be less negative for gold, it’s going to be less negative for cash, it’s going to be less negative for commodities and it’s probably going to be less positive so far as bonds and equities are concerned,” he said. To be sure, inflation has eased since the peak in 2022, when the Federal Reserve started hiking its federal funds rate to combat higher prices. The central bank began cutting rates in September 2024 but paused after its December decrease. It resumed again last week with a 25 basis point, or 0.25 percentage point, cut. Meanwhile, core inflation held around 2.9% in August, according to data released from the Commerce Department on Friday. That’s above the Fed’s target of 2%. Stocks are also higher, with the S & P 500 rising nearly 13% year to date. Still, Hartnett is looking at the bigger picture. “This decade is a decade of inflation, greater inflation than we’ve been used to in certainly the past 20 years,” he said. “Does that mean that every year is inflationary? Of course not.” Gold’s luster While gold’s record rally has certainly helped the portfolio, Hartnett said the run likely isn’t over. “If you believe that there is at least the threat or risk of U.S. dollar debasement, if you believe that inflation is, over the medium term, going to average 3%-plus rather than below 2%, … you’ve probably got more to go in terms of gold,” he said. That said, Hartnett isn’t attacking the 60/40 and recognizes its role for investors. “It is totally understandable right now that with the Fed cutting interest rates, so long as you don’t get a second wave of inflation into the midterms … that people are still embedded into the 60/40,” he said. The 25/25/25/25 portfolio merely points out the benefits of diversification, he added. “You can have a lot of fun in a lot of other asset classes, you can have a lot of fun outside of just being in U.S. equities,” he said. “Don’t forget diversification if you’re constructing a portfolio for the medium term.” (Learn the best 2026 strategies from inside the NYSE with Josh Brown and others at CNBC PRO Live. Tickets and info here .)
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