MODERN INVESTING IS CHANGING 

Investors who relied on the 60/40 portfolio strategy, based on its historical performance, are starting to realise that their financial outcomes are not what they expected.

At the same time, financial institutions are also starting to sound the alarm bells that the 60/40 strategy may no longer be as safe as it once was.

Diversification still matters, but now, more people are starting to think that this needs to go beyond just stocks and bonds.

That is why interest has been shifting to gold, property or even commodities. These assets don’t always get hit at the same time as the stock market. 

As for bonds, we don’t yet know whether they will fully regain their role as a cushion. 

If inflation stabilises and interest rates normalise, their traditionally inverse relationship may return.

The point is, there is no way to entirely eliminate risk when we invest.

Here’s the more fundamental question, though. Before you decide whether the 60/40 diversification strategy still holds for you, it’s worth asking what you’re trying to achieve.

After all, when you diversify, you are optimising for not losing too much. When you concentrate, you are optimising for the potential to win big.

Neither is right nor wrong. It simply depends on what you want. 

If your goal is to keep up with markets over time while managing risk, diversification can still be a sound strategy.

If your objective is to significantly outperform the market, then diversification alone is unlikely to get you there.

Markets will always change. Relationships between assets will shift. No strategy is guaranteed to work all the time perfectly – not even the one that has worked for decades.

What matters more is building a portfolio that reflects your goals, your risk tolerance and your ability to stay invested even when things get uncomfortable, rather than simply following what you think is the “right” formula. 

Dawn Cher, also known as SG Budget Babe, is the bestselling author of Take Back Control of Your Money. She has been running a popular blog on personal finance for the last 12 years.