Cryptocurrency
A Bedrock Approach To Asset Diversification Is Failing – Bitcoin May Have The Answer
A Bedrock Approach To Asset Diversification Is Failing – Bitcoin May Have The Answer: As reported on Forbes, “A core investment strategy is facing an unprecedented threat, and the solution may be to buy bitcoin. Known as the 60/40 portfolio, adherents allocate 60 percent of their investment to equities with the balance placed into debt […]
A Bedrock Approach To Asset Diversification Is Failing – Bitcoin May Have The Answer:
As reported on Forbes, “A core investment strategy is facing an unprecedented threat, and the solution may be to buy bitcoin.
Known as the 60/40 portfolio, adherents allocate 60 percent of their investment to equities with the balance placed into debt instruments. The rationale is to capture large gains when equities rise and rely on appreciating bond prices to protect their downside when markets correct. It is hard to argue with the results. The 60/40 portfolio has generated a compound annual growth rate of 10.2 percent in the U.S. since 1980.
However, these are not normal times and the extreme frothiness of today’s equity and bond markets resulting from unprecedented levels of government intervention represents an existential threat to the 60/40 strategy.
Simply put, the rules of the financial universe have been suspended. Major market indices such as the S&P 500 and Nasdaq NDAQ are up for the year despite exorbitant levels of unemployment and reductions in GDP. At the same time, yields of 10-year treasuries remain near historical lows and indices tracking both investment grade and junk bonds are in the black.
Therein lies the problem. If both debt and equities are going up at the same time, they could drop in parallel as well. This level of risk is untenable and forces investment advisors to look for new and creative solutions to diversify client portfolios…”