“Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway.” — Warren Buffett
Is the traditional 60/40 mix of stocks and bonds dead?
The Economist, a well-known magazine, recently came out with this article.
They say the hedging relationship that underpins the traditional 60/40 portfolio has fallen apart.
Rising yields on bonds simply make volatile equities less attractive by comparison.
The prices of both assets have fallen at the same time.
Equities have started to drop.
Yields on bonds are rising, reducing the value of previous bonds.
It’s been a terrible 12 months for stocks and for bonds.
Today, we’re going to talk about why you should not be using this method.
Let’s jump into it!
1. Bonds Are Toast
Back when I was an investment advisor, I found that stocks and bonds didn’t really serve people.
They were not a safe investment.
We’re watching that now as the values of both are significantly coming down.
I made a video a year ago saying the value of bonds will crash.
(If you want to understand how bond valuations work, I highly recommend that you check that out!)
Historically, the yield of bonds has been going down for years.
You might be wondering: What happens if you have bonds at a higher rate?
Let’s say a bond is paying 10%.
In the 80’s, that was common.
Since then, the bond valuation has been coming down.
If you owned these 10% or higher-value bonds, as long as the bond yields are going down, they are worth way more.
Well, now the reverse is true.
We got to almost zero percent interest.
In real numbers after inflation, we’re getting 1% or 2% return if you’re lucky.
What happens to old bonds now if new bonds are being issued with 4% or 5% returns?
It makes the other bonds worth way less.
Bonds are absolutely getting destroyed.
If you own bonds, I’d be very aware of this.
By now, you would have experienced that in your portfolio.
An interesting question to ask is: Why do people own bonds?
The answer is simple: They want consistent cash flow.
They want some sort of hedge outside of the stock market – especially now that inflation is high!
As of December 2022, inflation was officially 7.1%.
Shadow Stats puts it at about 15%.
This means it’s a time of negative interest rates because inflation ia higher than bonds will pay you.
It’s a unique time when interest rates are not actually above inflation!
Right now, more than any other time, saving is losing.
I think it’s a mistake to have lots of money sitting in a bank waiting for a better day.
You’re losing money that way!
Before we move on, I have a quick story:
I know an investor who I respect a lot.
Their financial advisor told them to not invest in our Bronson Equity deals.
This advisor had a lot of credentials and was overall a smart guy.
I responded to this investor’s concerns and said their advisor either is not wealthy or they didn’t make their money in a way they claimed – aka: using stocks and bonds.
Stocks and bonds, especially stocks, have an incredible amount of risk.
You could lose 30% to 50% in one year.
We never see that in multifamily.
Because of that, it’s really important to look outside of traditional stock and bond investing.
2. Stocks Are Very Risky
Why do we feel like stocks are safe investments?
It’s a campaign by Wall Street.
They spend billions of dollars to convince you that these are safe and secure investments.
But really think about it.
If I said I had a great investment for you, something that’s been around for a long time, and you could get up to 10% per year, would you take that deal?
But wait, there’s more!
In that same investment, we’ve had multiple instances where we’ve seen a 30% to 50% drop in a 12-month period.
Is that something that you’d be interested in joining?
Of course not!
You don’t wanna lose 30% to 50% in one year!
If you lose that amount in one year, how much time would it take to get back to where you were?
We’ve been conditioned to overlook these flaws through the marketing, and the retirement accounts, and what’s traditional.
Really, it doesn’t make any sense.
If we’re getting consistent double digit returns without the volatility in multifamily real estate, why would I be investing in something so volatile?
Why would I invest in stocks and bonds?
Particularly stocks, because they’re so up and down.
If you have a 50% decline in stock value or any investment in one year, the next year you have to have a 100% increase to get back to where you were.
Let’s say you had $1 million dollars and you lost half of it.
You’d have to go from $500,000 to $1 million, which is a 100% increase.
That’s not an easy journey by any means.
3. Real Assets
What’s the alternative to a stocks/bonds portfolio?
It’s investing in real assets.
Multifamily real estate is among my favorites.
I love that it’s an inflation-hedged asset that pays you to hold it.
You’re actually able to buy the asset using debt and you pay it off with dollars that are worth less in the future.
You’re using the bank’s money to buy an asset that will be worth more in 10 years because of inflation.
When you hold it, you get cash flow and it hedges inflation.
You also get incredible tax benefits.
What could be better than that?!
It’s a really, really awesome investment.
If you haven’t invested in multifamily, I highly recommend considering it.
I also like collecting precious metals.
I don’t actually consider this an investment, but they can easily create more dollars.
No one can easily create more gold or more silver.
It costs money to get out of the ground.
The metals become a hedge against creating more currency.
And right now, there are so many dollars being created.
The more real assets you can get into, the more you can get out of something called counterparty risk.
In stocks, bonds, paper assets, there are different parties involved.
Even precious metal ETFs will sell off a lot of shares.
If any of those companies have trouble, or there’s liquidity, you may not actually own what you think you own.
I’m about 95% invested in real assets.
I’ve seen my net worth go up about 20x in the last four years just by doing this and helping others do it.
I encourage you to take a look at real assets because they will not let you down.
I think the 60/40 portfolio is dead and it’s important to look at other things.
Now I want to hear from you!
Are you going to ditch your 60/40 portfolio?
What real assets are you excited to try?
Let us know in the comments!
Before you leave, make sure to check out our special report about inflation investing. It shares the best choices to invest during an inflationary environment.
If you are interested in investing with us, we are happy to answer any questions that you may have. Join our investment club today and we will be in touch.
Disclaimer: I am not your investment advisor. This is for educational purposes only. I am not giving specific advice on what you can do. I am simply giving my opinions.