41ILLUSTRATION BY THOMAS COLLIGAN
◼ SOLUTIONS Bloomberg Businessweek August 31, 2020THEBOTTOMLINE A 60/40splitbetweenequitiesandbonds,long
a stapleofportfoliotheory,mayfaceseriouschallenges,leadingsome
investorstoexperiment.Thereasonisthatwithbondyieldssolowandequity
valuationssohigh,thestrategy’sreputationforsolid,
steadyreturnsis in seriousdoubt.Investorsin thistype
ofmarketenvironmentwillneedtogetmorecreative,or
sotheoft-repeatedadvicegoes.
Fortheproswithlargesumsofmoneytoputtowork,
theoptionsbeyondthe60/40frameworkarebountiful—
fromprivateequitytoventurecapitaltoexoticsecurities
backedbya widevarietyofdebt.It’sa differentstoryfor
individualstryingtoincludethoseoptionsintheirown
pathtoretirement.Foronething,investorsmayhaveto
paya premiumin fees,andthosecostscanerodereturns.
Productsavailableforinvestingin alternativeassets,as
wellas“goanywhere”fundsthataren’tlockedintospe-
cificregionsoftheworldortiedtoa fixedmixofstocks
andbonds,oftencomewithhigheryearlyfees—say2.5%
to3%ofassets,comparedwithmutualandexchange-
tradedfundsthattrackstockandbondindexesand
chargefeesmeasuredin thetenthsof1%orless.
“Wehavegonearoundandaroundwiththesethrough
theyearslookingatdifferentoptionsoutthere,”says
JohnRitter,managingpartnerofRitterDaniherFinancial
AdvisoryLLC,basedinCincinnati.Thefirmmanages
about$450million,hasabout 325 mostlyretailclients,
andrunsone401(k)plan.“Wehavereallyfound,forthe
retailinvestors,therearen’ta lotofgoodalternativeinvest-
mentoptionsforthem.”
Still,theexpansionofETFsintothealternativespace
is a bigreasonwhythere’sa growingarrayofcheaper
options,includingfundsthatinvestinrealestateand
commercialmortgage-backedsecuritiesorthattrack
leveragedloans.Withinflation-adjusted Treasury yields
below zero, investors are on the hunt for alternative
sources of income, such as real estate and leveraged
loans, according to Daniel Tenengauzer, head of markets
strategy at Bank of New York Mellon Corp.
Of course, branching out often comes with a greater
risk of losses. “We do see individuals and clients who have
memories of yields being higher, and they will push for
higher yield,” says Robert Williams, vice president of finan-
cial planning at Charles Schwab Corp. “With Treasuries
too low, they want a corporate bond or a junk bond or a
limited partnership oil pipeline because it’s going to get
them a 6% or 7% yield. But that’s not a free lunch. The
yield is there because the risk is there.”
Some managers don’t advise abandoning the 60/40
framework entirely. Instead, they suggest investors be
more creative when deciding what goes into their stock
and bond buckets. Sixty-forty “isn’t necessarily broken,”
says Brandon Pizzurro, a portfolio manager at GuideStone
Financial Resources. “There’s still a lot you can do with
how things are allocated within bonds and stocks,” he
says, such as switching up geographies, sectors, and the
size of companies considered.To Kerrie Debbs, a certified financial planner at Main
Street Financial Solutions, who has about 53 clients and
managesabout$70million,thenewenvironmentinvolves
doingsomethingshe’sneverdonebefore:recommending
clients consider Treasury inflation-protected securities,
known as TIPS, whose principal rises with consumer
prices. “I had a while ago decided I wasn’t going to use
TIPS, given they are more complicated than many think,”
she says. “But I’ve come to a point where I think it is good
to add them to a slice of a portfolio.” For those in the
60/40 camp, she advises making TIPS about a quarter
of their bond holdings. “All the printing of money has now
gotten beyond academically inflationary, so these secu-
rities are likely good to buy.”
This year’s drama in markets has led many individual
investors to reassess their approach to investing. Financial
planning discussions with clients at Fidelity Investments
were up 24% in the second quarter compared with the
previous year, says Jennifer Kruger, a CFP who’s branch
leader of Fidelity’s Bryant Park Investor Center in New
York. Fidelity clients showed a tendency to buy the dip
in stocks during the bear market earlier this year, with
buy orders outnumbering sell orders by a ratio of 1.7 to 1
fromFebruarytoAprilandpeakingat2.3onApril21.The
historical average is about 1.2.
The holdings of all clients at Fidelity skew a little more
aggressively than 60/40. About 65% of their assets are
in equities, either individual stocks or ETFs, while 15% is
in fixed income and 20% is in cash, according to Kruger.
Since leaning more heavily on equities for returns will
likely be the route many investors take in an environment
where the safest bonds pay next to nothing, extra care
may be needed when crafting the stocks portion of any
portfolio—at least for investors with an appetite for trying
to beat passive index-tracking funds.
VineerBhansalihassomeadvicethat’seasyforan
individual investor. He’s the founder of LongTail Alpha,
based in Newport Beach, Calif., a fund designed to
thrive in times of increased volatility, such as in March
when it gained tenfold as the S&P 500 slid 12.5%. An
ideal way to diversify equity exposure is through the
stocksthemselves,hesays;investorscanhedgelofty
technology-driven gains in the Nasdaq and S&P 500
indexes with purchases of mid- to small-cap shares in
the Russell 2000.
Debbs has an even simpler, though not necessarily
easy-to-follow, tip that most individual investors would
bewisetoheedinallkindsofmarkets.“Youreallyalso
havetosavemore,”shesays.�Liz Capo McCormick,
Anchalee Worrachate, and Vivien Lou Chen