Rethinking the “Balanced” Portfolio: Personalized Asset Allocation for Longevity and Legacy
For many years, the 60/40 stock-bond portfolio was widely regarded as a reliable approach to asset allocation. Its blend of growth and stability made it a cornerstone of traditional investment strategy. However, today’s financial landscape has evolved significantly. The strategies that once delivered consistent returns may no longer offer the same results, or even worse, may lack the same protections.
In this article, we explore how asset allocation strategies can, and should, be adapted to meet the unique needs of individuals and families, rather than relying on a one-size-fits-all model.
Understanding the Limits of the Traditional 60/40 Portfolio
The 60/40 model rose to prominence during a period of economic stability, when bonds provided steady income and helped balance equity volatility. For many investors, it offered a practical and effective framework for managing risk and return.
However, several changes in the global financial environment have reduced its effectiveness. More frequently occurring Fed rate hikes and cuts have contributed to greater volatility in bond markets, and at times, created extended periods of near-zero interest rates that dampened bond yields. Moreover, bonds may no longer protect purchasing power like they once did. Bonds’ market values, and the purchasing power of their future interest and principal payments, are highly susceptible to persistent increases in inflation and a weakening U.S. dollar. The above, coupled with a general increase in correlation between stock and bond returns, have weakened the 60/40 portfolio’s diversification benefits.
Another growing concern within traditional public markets is the rising concentration in major indices like the S&P 500. In recent years, a small group of mega-cap technology companies has come to dominate index performance. This heavy concentration means that even a broadly diversified equity allocation may be overly reliant on the fortunes of just a few companies.
While these firms have delivered impressive returns, their outsized influence introduces additional volatility and risk. Should sentiment shift, portfolios tied closely to the index could experience outsized losses. For investors, this reinforces the importance of diversification not just across asset classes but within them, seeking exposure beyond traditional benchmarks to reduce dependency on a narrow set of market leaders.
The Case for Purpose-Based Portfolio Construction
Our clients often face complex financial circumstances extending well beyond traditional retirement planning. Their objectives may include preserving wealth for future generations, funding philanthropic initiatives, managing liquidity for business ventures, and more. In many cases, these goals intersect and evolve over time, adding layers of complexity to the investment decision-making process.
Given this diversity of goals, it’s important to move beyond cookie-cutter models. Portfolio design should begin not with a formula but with a conversation that uncovers purpose, timelines, responsibilities, and aspirations. The concept of “balance” evolves into one of “alignment,” ensuring that investment strategies reflect the specific needs and values of the individual or family.
Traditional risk questionnaires often fall short in this context. Our goals-based approach helps tailor strategies around lifestyle and liquidity considerations, estate planning needs, and tax efficiency. This approach also allows for greater responsiveness as circumstances change. Put simply, every portfolio at Bemrose reflects the distinct financial story of its owner.
From Growth to Preservation: Adapting Over Time
Wealth is not static, and neither should a portfolio be. Financial needs and risk profiles evolve as individuals move through different life stages and as their asset base grows. A newly successful entrepreneur, for example, may be focused on growth and wealth creation, while a more established investor may be prioritizing wealth transfer and philanthropy.
Understanding these distinctions is essential when designing effective portfolios. Investors in the initial phases of wealth accumulation may benefit from a greater appetite for risk, while families with institutional-level wealth may focus on capital preservation, tax efficiency, and multi-generational planning.
Additionally, the scale of wealth often determines how much illiquidity a portfolio can accommodate. Larger portfolios can more comfortably incorporate long-term or less liquid investments, creating opportunities for strategic diversification that smaller portfolios may not afford.
Here to Navigate with You
Even the most sophisticated investors are subject to emotional and psychological influences. Loss aversion, overconfidence, and inertia can all affect decision-making and impact long-term outcomes.
Recognizing and managing these behaviors is a critical part of our role as advisors. We play a key role not just as strategists, but as coaches and sounding boards, helping clients stay disciplined, adjust when needed, and make informed decisions during periods of uncertainty.
The 60/40 portfolio still holds value in certain contexts, but it may no longer meet the needs of today’s high-net-worth investors. As financial markets and our financial lives become more complex, so too must the strategies used to manage them.
