What 7 Advisors Are Saying About 60/40 Portfolios, Tech Stocks Now: Advisors' Advice

Slideshow September 21, 2023 at 04:40 PM Share & Print

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With the 60% stock, 40% bond portfolio apparently on the mend this year after many market experts declared it dead in 2022, clients may wonder what exactly to make of their asset allocation choices.

Factor in the outperformance of big tech stocks that have driven the S&P 500′s rally this year, high bond yields, uncertainty over a long-predicted recession and ongoing questions over the Federal Reserve’s interest rate plans, and it’s no wonder investors have questions for their financial advisors.

We asked advisors: Given how high the equity markets are going these days — with the S&P 500 approaching 4,500 — what are you telling clients about 60/40 portfolios, buy/hold strategies or any concentrated tech positions?

Check the gallery for responses from seven advisors. Some answers have been edited for length or clarity.

Dinah Wisenberg Brin

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1. Diversification is key.

Long-term buy/hold strategies are still viable, but they should not be a set-and-forget approach. We're actively engaging with our clients to ensure that their portfolios are rebalanced according to their risk tolerance, tax situation and long-term goals.

This may involve reevaluating individual stock holdings or asset classes that have become overweight due to market movements. When it comes to concentrated tech positions, tech companies have shown impressive performance numbers in recent years; many portfolios are now tech-heavy.

While it's tempting to ride the wave, this concentration carries a unique set of risks, including regulatory changes and sector volatility. Diversification remains key; even within the tech sector, there are subsectors like cloud computing, e-commerce and cybersecurity that provide some level of internal diversification.

— Christopher Clepp, president and founder, Building Towards Wealth

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2. Beware of tech concentration.

There is definitely a sense of expectation around the market like we are all waiting for the bottom to drop out of it. That being said, for my clients who are near or at retirement age, there is less of a concern because bonds are finally performing well due to increased interest rates, which means we can afford to take less risk and still achieve decent returns.

The 60/40 portfolio can still have a place but that 60% should be well diversified. Concentrated tech positions are not going to do anyone any favors with P/E ratios of 25 or 30-plus.

— Carman Kubanda, financial planner, Innovative Wealth Building

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3. The 60/40 portfolio hasn't looked this good in years.

I am telling clients and prospects that the 60/40 portfolio hasn’t looked this attractive in many years, mainly due to the current yields on the bond side of the equation. Since you can currently earn 5% on the 40% piece — the bond side of the 60/40 portfolio — today you don’t need to earn blow-away returns from the equity piece to earn a modest overall portfolio return of between 6% and 7% per year.

— Will Brennan, founder and principal advisor, Park Hill Financial Planning & Investment Management

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4. Don't try to time the market.

With the S&P 500 approaching 4,500, investors may be concerned about the runway that this market has left before a meaningful pullback. But adjusting your allocation in an attempt to time a market downturn will most likely do more harm than good.

The average investor tends to underperform the return of the very investment that they’re invested into. Why? Investment behavior around buying and selling.

Instead, adjust the standard 60/40 portfolio to include 1-2 years worth of spending in cash. In today’s environment, cash can earn a meaningful return. But most importantly, these future distributions are insulated by market volatility today, allowing some time for the rest of your portfolio to recover in the event of a market drop.

Now is also a great opportunity to reevaluate any concentrated positions.

— David Hunter, owner, lead advisor, First Light Wealth

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5. Bonds are boosting the appeal of a balanced portfolio.

Clients feel like they can “have their cake and eat it too” — they can get the yield from fixed income and get the downside cushion to stocks that it has historically offered.

A 60/40 portfolio, specifically [the] larger allocation to bonds, is more appealing to retirees now that interest rates are higher and the yields are more substantial. A balanced portfolio and the downside cushion that it offers has become more appealing.

When yields were low years ago, it was a bit of a “hold your nose” moment where clients felt the need to reach for returns with more stocks than bonds, hoping they didn't get punished, or accepting low yields with a more balanced portfolio.

— Noah Damsky, principal, Marina Wealth Advisors

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6. Remember to rebalance.

In short, I'd tell my 60/40 clients to consider looking to rebalance their accounts depending on how out of whack they may be from their 60/40 target and depending on the tax consequences of doing so, if it is a taxable account.

I'd tell other buy-and-hold clients the same and I would encourage investors with concentrated tech positions that now is as good of a time as any to look to try and diversify out of your position as much as you can without incurring too much of a tax hit.

— Robert Stromberg, financial planner and owner, Mountain River Financial

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7. 60/40: Yes for retirees, no for young investors.

If you are near or in retirement the 60/40 portfolio is still an efficient way to invest. You can build a 60/40 portfolio for less than .05 basis points — virtually free — and you can get track indexes for potential long-term gains.

Investors can now get attractive yields from bonds at 5% plus; this has been nonexistent over the past decade. If you are in retirement, having bonds yielding at these rates strengthens your income strategy.

If you are a younger investor, a 60/40 portfolio is a big no-no. Depending on your risk tolerance, you should be in a more aggressive portfolio that is heavily weighted to equities.

I work with many clients in tech that have concentrated stock positions. When a client has more than 10% of their net worth in a stock, I recommend they sell and diversify. This isn't always easy as many people have a FOMO mentality about their company stock.

I work with clients on a tax-efficient sell strategy that makes sense for their life goals.

Usually it's a quarterly or semi-annual sell strategy that helps take the emotion out of it; it's systematized so they can take advantage of dollar cost averaging over the long term.

— Eric Rodriguez, founder, financial advisor, Wealthbuilders

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