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The death of the 60/40 portfolio (lynalden.com)
48 points by ilamont 4 months ago | hide | past | favorite | 55 comments



So the majority of gains in their portfolio are strictly from bitcoin. Is this death of 60/40 in order to get a soft sell on a long bullish bitcoin perspective / sell of newsletter?

I'm not sure what I am supposed to be getting out of this article.


From the article:

> I have been recommending what I have called the “three pillar portfolio” during this period of fiscal dominance. It has been a cornerstone concept of how I have been investing in the macro sense. For me, the three main pillars consist of 1) profitable equities 2) commodities/producers and hard monies and 3) cash-equivalents.


I think we are far beyond a random blogger being able to rally bitcoin.

I think you are just reading a real believer's perspective.


Fair. It's funny to see it from an investment perspective that completely lacks fundamental analysis and relies upon scarcity and momentum. I guess if you bound it with contracts limiting the downside risk it works to get some single hits and up the portfolio. However holding it on its own you need to have a belief in its fundamental value.


I'm approaching retirement (as in, probably months away), and allow the brokerage to manage a lot of our money for reasons that aren't important for this discussion. And even as old fogey almost-pensioners, the brokerage doesn't have us anywhere near in 40% bonds. From a bit of a skim of TFA, yeah, it's a dated strategy from a time that has long-since passed. Additionally, that portfolio allocation didn't do all that well even in the past.


You're letting people who benefit from you trading a lot manage your money? Let me guess, do they trade a lot?

Seriously, letting a brokerage manage your money, first time I hear such a thing.


Seriously, letting a brokerage manage your money, first time I hear such a thing.

Then perhaps uninformed opinions are best left in our own heads. Though I would be happy to answer any questions, should you find the ability to ask in good faith.


> answer any questions

Does your broker have a fiduciary duty to act in your interests, as a fee-only advisor (for just one example) would?


Yes to both. Unlike the assumptions made by another commenter, the brokerage doesn’t care how much trading goes on because they take a flat percentage each quarter. (And they don’t charge commissions on trades anyway, whether it is me trading or them.) And the advisor we work with does, indeed, have a fiduciary duty. It’s not like I don’t know what I’m doing, I managed our portfolios for decades, and did pretty well and we will retire quite comfortably. But I’m tired of doing it, I’m willing to let someone else do it now.

So if anyone was picturing the movie Boiler Room, umm, that was a movie.


I know you believe I'm not in good faith (for some reason I don't really understand), but I'll ask anyway. You said they take a flat percentage. May I ask what's the percentage and what do you get in return?

The reason I'm asking is that I know the business of "advising" and the examples I know take like 1% and then put it in some fund that itself charges about 1%.... And so if this is what you're doing, this might explain why I (still) believe you don't know what you're doing, while at the some time you're really proud of your decision making - you're getting gauged and don't realize it.

Don't worry, I won't charge you for this insight.


> ask in good faith

What do you mean, are you suggesting I actually know the answer?


Put it all on red.


Wouldn’t it be more economically and fiscally efficient to…pay people after retirement by printing money on demand? It’s effectively what we are doing except we now introduced a bunch of middlemen (Wall Street) and funnel retirement money into vehicles for the rich. Current system makes no sense to me.


That's not really equivalent. In a fractional banking system, even if a loan is entirely "newly created money," it's not without strings: it's a loan, that needs to be paid back.

Someone wants to buy a house, the bank creates $500k "out of nothing" and the two parties enter into a loan. For the buyer, their $500k asset (bank money) is balanced by a $500k liability (mortgage). It's symmetrical for the bank: a $500k liability (bank deposit) is balanced by a $500k asset (loan). Once the loan is paid off, the balances go to zero and that "new money" has effectively been completely destroyed. What the loan issuer gets in compensation, of course, is the interest.

Even with QE, when central banks "print money" to buy distressed assets, they are buying assets, not handing out new money no-strings-attached. And that new money is listed as a liability on their balance sheet, with the purchased assets balancing it on the other side.

Monetizing social security would break this balance. A central bank would create new money, adding it to their liabilities, and then give it away, receiving... nothing? The money supply would continuously increase without a corresponding sink to "suck it back up." That would (1) lead to inflation, thus (2) requiring more money creation for retirees to keep up with increased prices; goto (1).

In order for something like this to work, you would need some kind of sink. That could be done with taxes. But then we're sort of back where we started. The central bank wouldn't be monetizing social security no-strings-attached, but creating money with a promise from the government that it will tax the economy sufficiently to pay it back. It would just be another loan.


> A central bank would create new money, adding it to their liabilities, and then give it away, receiving... nothing?

Central bank would get government bonds, as you mentioned. Of course, the lions share needs to be offset through a cut from a country's economy, however you organize it (taxes, social security), and bonds cover the variations over a few generations. But there is no real upside when handling that via middle men.


> pay people after retirement by printing money on demand?

Yepp, it is. It's called "Umlageverfahren" here in Austria, which makes it sound it's based on direct transfers from working to retired, but it's basically the same system. The crucial point is, that is saves on the middlemen.


You mean like social security?


Those wall street middlemen are way better a designing mutual funds and ETFs than I am. I am happy to pay for their expertise.


> Those wall street middlemen are way better a designing mutual funds and ETFs than I am.

Unless those mutual funds or ETFs are passive index funds, no they are not (unless the design is meant to extract fees):

* https://www.ifa.com/articles/active-fund-managers-benchmark-...


They appear to me as a make work project for the financial market professionals. I wonder if inflation is currently tied to volume of trades that are needed to maintain our economy.



I’ve never seen anyone recommend 60/40 at least in the era of forums like Reddit personal finance and Bogleheads.


> I’ve never seen anyone recommend 60/40 at least in the era of forums like Reddit personal finance and Bogleheads.

It's recommended all the time in (e.g.) /r/PersonalFinanceCanada if you want a more conservative portfolio (e.g., in or nearing retirement):

* https://canadiancouchpotato.com/model-portfolios/

or if it suits your risk profile (you'd lose sleep over large dips in your portfolio, even if you aren't in/near retirement):

* https://old.reddit.com/r/PersonalFinanceCanada/wiki/investin...

* https://www.youtube.com/watch?v=JyOqqtq12jQ

* https://canadianportfoliomanagerblog.com/model-etf-portfolio...


60/40 was (always?) back-of-the-envelope math to show how it could be more performant than 100% stocks or 100% bonds with rebalancing and less risk.

The other main shift has been that retirement at 65 isn't just for 10 years or so - you could be staring down 25+ years, and need the retirement income to last that long.

If you can get there with 60/40, you probably should be investigating annuities as they protect against the final risk: outliving the money.


I have always heard ratios closer to 80/20 or 90/10 unless you are approaching the annuity realm like you mention.


Here in Canada, there was a trend for the 'Couch Potato Portfolio' with the arrival of popular ETFs that used these splits between equities and bonds and then just rebalancing once a year. The key point was really using entire index ETFs with low MER fees on auto, with the bonds portion as the stability. 'All in' ETFs have sort of replace that.


Bengen's 1994 paper (which kicked off the (so-called) "Four Percent Rule") recommended asset allocations with no less than 50% in equities, but no more 75% for retirement savings when you have retired:

* PDF: https://web.archive.org/web/20120417135441/http://www.retail...

* https://en.wikipedia.org/wiki/William_Bengen

60/40 would be in the middle of that. More recent research shows that the range is still valid with thirty years more data:

* https://en.wikipedia.org/wiki/Retirement_spend-down#Withdraw...

You may wish to be a bit more bond-heavy a little before retirement and for the first few years to counter sequence of returns risk (see Kitces' "bond tent" concept):

* https://www.kitces.com/blog/managing-portfolio-size-effect-w...

(The 4% Rule should not necessarily be taken literally, but is a good mental rule of thumb and starting point: best to hire a (fee-only) advisor to run the numbers for an actual plan.)


For european investors: Vanguard LifeStrategy. Pick the specific etf based on your risk level (percentage of stocks, 20% or 40% or 60% or 80%) . Adjust if needed. Buy regularly, never sell until retirement.


Wait, what? This person has multiple personal investment accounts that use different strategies? And (this is key) their retirement money is in none of those, but a “relatively passive indexed” portfolio!

They may as well start this newsletter with a banner saying “For Entertainment Purposes Only”.


Once again 60/40 is dead, just like it was declared in 2017, 2016, 2015, … receipts:

* https://awealthofcommonsense.com/2022/06/is-the-60-40-really...

More recently in 2023:

* https://awealthofcommonsense.com/2023/09/the-60-40-portfolio...

> It’s one of my smallest accounts, but the goal is for the portfolio to be accessible […]

has eleven "slices" with dozens and dozens individual holdings

If that's "accessible" I would hate to see inaccessible. How the hell do you even rebalancing such a creature (e.g., individual holding having a target 4% allocation)?

For anyone who is a fan of the 60/40, there's merch (in the style of "AC/DC" band) at (no affiliation):

* https://www.idontshop.com


Lyn's newsletter portfolio uses a US fintech that lets you declare your portfolio slices, and they maintain the balances for you.

She has another portfolio that still uses her investment thesis, but does it with a smaller collection of ETFs for folks who find that more accessible.


if individual investors bought the S&P with leverage, they would retire in 10-15 years. But the money management industry keeps people in these terrible portfolios


Most target date funds are invested up to 80-90% in equities early in their life, with the remainder being bonds and short term (cash) investments. The re-allocation to bonds as the target date is approached (at which point the fund converts to a terminal income fund) is to reduce equity volatility and sequence of return risk (ie maximize growth exposure when it can be tolerated, reduce exposure as risk tolerance declines due to approaching income need).

We'd all like to capture maximum risk adjusted returns, but compromises must be made depending on your desired outcome and constraints.


This is too conservative and isnt helping people, you will work for your whole life with this investment plan and a regular income


Neither is having a portfolio take losses you can't tolerate unless you die and someone inherits it (with recovery happening while they're holding it). If the problem is that investors don't have enough cashflow over their working years to assemble a balanced portfolio that will comfortably carry them to death, that is a different issue. Reaching for risky yield is a lottery ticket.

If you maximize equity exposure too high, too long, you will potentially get blown out of the water. Broadly speaking, at some point, gains must be locked in and invested somewhere less risky (assuming your average person investing to retire).

https://archive.nytimes.com/screenshots/www.nytimes.com/inte...

https://archive.nytimes.com/www.nytimes.com/interactive/2011...


A slight over simplification, for example s&p was negative 1% per year from Jan 2000 to Dec 2009. Plus the cost of your leverage.

But the general point that US equity returns have been good and leverage would have increased them stands.

For some reason, Americans are “told” to get 4x leveraged to the real estate market but to pay for their equities with 100% cash.


Because if your house goes underwater, you keep living in it for years until it recovers and grows. With leverage on equity you get margin called during drops that kill your investment and give you no capture of future recoveries.


> A slight over simplification, for example s&p was negative 1% per year from Jan 2000 to Dec 2009. Plus the cost of your leverage.

For the 2000s, a US-only investor would only have been saved from the S&P500 by having at least 20% bonds and rebalancing:

* https://www.forbes.com/sites/advisor/2010/09/13/its-not-real...

Of course if you were not US-only, but rather internationally diversified (and rebalanced), you would also have been fine. Diversification is important, even for Americans (cited sources in the description):

* https://www.youtube.com/watch?v=1FXuMs6YRCY


Thanks for the great video on international diversification.

I noticed he has another on the related topic of bias toward investing in one’s home country.

https://youtu.be/qYedjI03Q0g?si=-wOqSA96cmScFInq


> For some reason, Americans are “told” to get 4x leveraged to the real estate market but to pay for their equities with 100% cash.

Your mortgage is fixed for 15-30 years (depending on mortgage product), and your real estate cannot be margin called (unlike securities which are constantly fluctuating in price).

Edit: Over leveraging on margin to buy equities? Not great. Borrowing against real estate equity to invest in equities, with rent comfortably covering the debt servicing? Potentially not as bad. TLDR Manage your risk exposure appropriately.


This reply cannot be understated. Those who are strong advocates for highly leveraged equity positions who use real estate to justify either have yet to experience a true market decline, or are simply really green to investing.

If I could leverage 4:1 on the total market index using a fixed 30 year loan without the ability to force a sale I would in a heartbeat. Unfortunately, that’s just not how it works.

And anything claiming to be the solution to that (like a leveraged ETF such as UPRO), suffers from volatility decay that causes it to underperform or eventually go to zero in horizontal markets (e.g. lost decades).


Yup. You cant get margin called on a mortgage, but theres clearly an optimal S&P leverage ratio, and its far above 1. Wild how repulsed americans are by this, when they really could retire much younger


Where do you recommend we can read more about this?


That’s a diluted version of the logic that if we just printed out 10 million for each citizen, then everyone could quit their job and live rich, but the system somehow wants to keep people miserable and prevents this.


If every investor bought Bitcoin with leverage and started say 5 years ago they'd be retired now

Doesn't make it a good strategy.


> if every individual investor bought the S&P with leverage, they would retire in 10-15 years

If you cherry-pick a specific period, sure. With that perfect foresight everyone can retire in a year, let alone 10-15.


Well, anyone. Not everyone.


> if every individual investor bought the S&P with leverage

You could also go broke! (or at least significantly underperform historical averages.) Sure, you can make higher returns by taking more risk. That's not most people's tolerance in a retirement portfolio.

There are plenty of other ways to diversify besides a 60-40 portfolio that are a lot lower risk.


Most people arent educated on how leverage isnt that scary, whats scary is working a job for 50 years


What is scary is living in a society, where doing something productive most of your life is undesirable.


If you don’t want to work a job for 50 years because your portfolio got blown out, don’t buy stocks on margin. At least that’s what people who have been “educated on leverage” do.


Save for all those universes where due to leverage your investment goes to zero.

Anyways, go ahead and put 100% of your portfolio in XXXX.P, and enjoy your retirement in 2034!


basically impossible if you stay 3x and below


Why isn't everyone dumping their money into SPXL then? What percentage of your portfolio is leveraged s&p?


How much leverage though?




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