This diversified portfolio has shown promising results in 2023, with the U.S. allocation—comprising 25% stocks (measured by the S&P 500), 25% bonds (using the 10-year Treasury as a benchmark), 25% Treasury bills, and 25% gold—gaining 16% year-to-date. In contrast, the traditional 60/40 portfolio has only increased by 10%. On a global scale, the 25/25/25/25 portfolio, represented by the MSCI All Country World Index for stocks and the ICE BofA Global Fixed Income Markets Index for bonds, has risen by 18% this year, compared to a 13% gain for the global 60/40 model. While it may not outperform every year, Bank of America’s analysis indicates that this diversified approach has kept pace with the returns of the 60/40 portfolio throughout the decade.
Hartnett originally proposed the 25/25/25/25 strategy at the beginning of the decade, anticipating that inflation and rising interest rates would dominate the economic landscape. He noted, “In an environment where Main Street inflation is on the rise, it will be less detrimental for gold, cash, and commodities, while being less favorable for bonds and equities.” Although inflation has eased since its peak in 2022, when the Federal Reserve began increasing interest rates to combat rising prices, the central bank has recently resumed rate cuts. As of August, core inflation remained around 2.9%, exceeding the Fed’s target of 2%.
Despite the current economic climate, Hartnett maintains a long-term perspective. He believes that this decade will experience higher inflation rates than those seen in the past 20 years, stating, “Does that mean that every year will be inflationary? Of course not.” He also highlights the ongoing appeal of gold, suggesting that its recent rally may continue. “If you believe there is a risk of U.S. dollar debasement and that inflation will average above 3% in the medium term, there’s likely more upside for gold,” he explained.
While Hartnett acknowledges the merits of the traditional 60/40 portfolio, he encourages investors to consider the advantages of diversification. “It’s entirely reasonable to remain committed to the 60/40 strategy, especially with the Fed cutting interest rates,” he said. However, he urges investors not to overlook the potential benefits of exploring various asset classes. “You can have a lot of fun in many other asset classes beyond just U.S. equities,” he added. “Don’t forget the importance of diversification when constructing a portfolio for the medium term.” (For insights on the best strategies for 2026, join Josh Brown and others at CNBC PRO Live. Tickets and info available here.)
