The global economy has entered a new cycle that demands a new portfolio for the current decade beyond the usual 60/40 stock/bond mix, according to J.P. Morgan Asset Management’s latest Long-Term Capital Market Assumptions Report, its twenty-fifth.
The impetus to move beyond the 60/40 model is stronger now than last year, when JPAM first suggested an alternative, and stronger than after the Great Financial Crisis, according to the assumptions report. Bond yields are lower because of monetary policy and equity valuations are higher because of fiscal policy — setting the stage for lower returns in the future.
“The 60/40 portfolio, the stalwart for many, many years of American investing, has been cut down to the point where it has reached just a 4.2% expected return,” a weaker outlook that has accelerated during the coronavirus pandemic, said John Bilton, Head of Global Multi-Asset Strategy, Multi-Asset Solutions at JPAM, who spoke on a webinar about the report. “We need to recognize that a 60/40-only portfolio will really struggle in the current environment.”