MODERN INVESTING IS CHANGING\u00a0<\/p>\n
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.<\/p>\n
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.<\/p>\n
Diversification still matters, but now, more people are starting to think that this needs to go beyond just stocks and bonds.<\/p>\n
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.\u00a0<\/p>\n
As for bonds, we don’t yet know whether they will fully regain their role as a cushion.\u00a0<\/p>\n
If inflation stabilises and interest rates normalise, their traditionally inverse relationship may return.<\/p>\n
The point is, there is no way to entirely eliminate risk when we invest.<\/p>\n
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.<\/p>\n
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.<\/p>\n
Neither is right nor wrong. It simply depends on what you want.\u00a0<\/p>\n
If your goal is to keep up with markets over time while managing risk, diversification can still be a sound strategy.<\/p>\n
If your objective is to significantly outperform the market, then diversification alone is unlikely to get you there.<\/p>\n
Markets will always change. Relationships between assets will shift. No strategy is guaranteed to work all the time perfectly \u2013 not even the one that has worked for decades.<\/p>\n