Strategists say a traditional 60/40 portfolio will deliver annual returns of 3.5% over the next decade, compared with 10% over the past few decades
In a year where a classic 60/40 allocation has affirmed the success of this time-tested strategy, JP Morgan is joining the list of Wall Street banks that are calling for its demise in the coming years.
Historically, financial advisers would tell their clients to keep 60% of their cash in stocks and the rest in highly rated bonds, with the idea that the portfolio would capture the dramatic long-term gains achieved by equities, while depending on the "safe" fixed-income assets like government bonds to rally during any short-term drawdowns in the stock market.
Yet money managers and bank strategists have repeatedly questioned the ability of government bonds and mortgage-backed debt to act as ballast in a portfolio, with yields on such "safe" assets looking increasingly meager.
"In the zero-yield world, which we think will be with us for years, bonds offer neither much return nor protection against equity falls," said Jan Loeys and Shiny Kundu, strategists at JP Morgan, in a Tuesday note.