Investment Management: A Multi-Asset Approach

Investment Management: A Multi-Asset Approach

The 60/40 Portfolio is Potentially Broken

Long before banks and other financial experts declared the 60/40 portfolio to be broken, I knew there was something wrong with this investment management. The 60/40 portfolio means that you invest 60% of your money in stocks and 40% in bonds. For a long time, this retirement advice worked with mathematical precision. In other words, the 60/40 portfolio relied upon a negative correlation between stocks and bonds. If stocks went down in value, bonds would move up to protect your investment, and vice versa. Over the past few years this negative correlation no longer held true, which is why Bank of America, Morgan Stanley, and JP Morgan declared the model to be dead or ailing. We likely went from a negative correlation between stocks and bonds to a positive correlation where stocks and bonds move in the same direction, thus potentially negating the very reason we have a 60/40 portfolio.

The REALM Model

If the negative correlation of a two-asset class portfolio no longer proved to be working, then it was time to explore the potential benefits of a multi-asset class model. Large university endowments have used a multi-asset class portfolio for years with envious success. David Swensen, who has been the fund manager for Yale’s endowment program, has succeeded in building Yale’s endowment from $1 billion in 1985 to over $29 billion in 2019. For a long time, these large institutional investors utilized alternative investment vehicles such as real estate, mutual funds, ETFs, etc., in a multi-asset class portfolio. Over time, these same alternative products became available to the average investor. I developed my Retail Endowment Allocation-Like Model (REALM for short) to help the average investor prepare for retirement and reap the potential benefits of a multi-asset class approach to investing.

Be advised that alternative investments are speculative by nature and have various risks including possible lack of liquidity, lack of control, changes in business conditions and devaluation based on the investment, the economy and or regulatory changes. As a result, the values of alternative investments do fluctuate resulting in the value at sale being more or less than the original price paid if a liquid market for the securities is found.

Why You Need REALM

Let’s remember that investment management is about handling financial assets – not simply buying and selling them. Part of investment management is devising short or long-term strategies for acquiring or disposing of portfolio holdings. One of the powerful features of my REALM model is its flexibility, adaptability, and customizability. In other words, my REALM model is customized to each client’s unique retirement needs, time horizon, risk profile, and several other factors. Part of what made David Swensen’s investment management style successful was his ability to move in and out of asset classes in order to maximize long term profits for Yale University. This is precisely the aim of my REALM model: to dynamically change asset allocation within a multi-asset class portfolio in order to offer my clients consistent returns while managing risk.

No strategy or model can guarantee returns or eliminate risk in any market environment.

Why Financial Literacy is Critical

Cinergy Redefining Financial Literacy Book LinkWhile having a basic understanding of financial literacy is important, we need to broaden our definition of what constitutes financial literacy. In other words, we need to move beyond the basic definition of financial literacy, which includes an awareness of budgets, savings, and investing in stocks and bonds. We need to learn about the hidden forces that may shape and influence your investment choices and outcome. These hidden political, historical, economic, psychological, and even social media forces play a powerful role in shaping market behavior. If you understand how these forces work, the heightened uncertainty and volatility they create in the market, you may then want to explore other investment opportunities that potentially offer you consistent returns while managing risk. It is imperative that you educate yourself. One powerful first step you can take is to read my book, Redefining Financial Literacy, which offers an in-depth understanding of financial literacy and the different investment strategies available to you.

Bernice Napach, “Wirehouses Warn: 60/40 Asset Allocation is Dead,”, November 12, 2019.

Drake Bennett, Janet Lorin, et al., “How David Swensen Made Yale Fabulously Rich,”, September 11, 2019.

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