The 60/40 portfolio has been the gold standard of balanced investing for decades. For good reason: it worked. From 1976 to 2021, a simple mix of 60% stocks and 40% bonds delivered solid returns with manageable volatility.

But something has fundamentally changed.

In 2022, the 60/40 posted its worst performance since the 1970s, falling 16%. Both stocks and bonds declined together, which wasn’t supposed to be able to happen. The diversification that investors counted on disappeared when they needed it most.

The question facing investors now isn't whether 60/40 still works. It's “what will you replace it with?”

In today's edition:

🔍 Why the correlation between stocks and bonds broke down
📊 Morgan Stanley's new 60/20/20 portfolio
🏛️ How central banks are quietly hoarding gold
₿ The case for Bitcoin as "digital gold" in modern portfolios
🌍 Why the longevity argument is changing retirement
📈 Three specific portfolio models designed for the inflation era

Let’s begin.

The core logic behind 60/40 was simple: when stocks fell, bonds typically rose (or at least held steady). This negative correlation provided the portfolio's defensive backbone.

That relationship has broken down.

During 2022's inflation surge, the S&P 500 dropped nearly 20% while the Bloomberg U.S. Aggregate Bond Index fell 13% (its worst year on record). The iShares 20-year Treasury ETF has declined almost 50% over the past five years.

Obviously, this wasn't a brief anomaly. When inflation expectations rise, both stocks and long-term bonds can fall simultaneously. Stocks suffer from higher discount rates, while bonds get crushed by interest rate risk.

The diversification benefit that defined 60/40 for four decades has become unreliable in an inflationary environment.

Interest rates fell from 19% in 1981 to near zero by 2020, a 40-year tailwind that gave bonds both income and price appreciation. With rates now rising from historic lows and the US dollar down 10% this year alone, bonds face potential headwinds that could last for years.

Smart money has been quietly adapting. Morgan Stanley recently proposed a 60/20/20 framework: 60% equities, 20% short-duration bonds, and 20% gold.

This is a fairly big deal; it’s an admission from one of Wall Street's most conservative institutions that bonds alone can no longer provide the defensive characteristics that balanced portfolios need.

For decades, financial advisors dismissed gold as a dumb relic that produced no income. But in an era of currency debasement and persistent inflation, gold's role as a store of value seems to be back.

Central banks agree. They purchased a record 1,037 tons of gold in 2022 and continued buying aggressively in 2023, which were the highest levels in over 50 years. Countries from China to Poland are diversifying away from US Treasuries and into gold reserves.

When central banks are hoarding an asset, individual investors should pay attention.

Financial advisor Ric Edelman has taken the hard asset argument even further, suggesting cryptocurrency allocations of 10-40%. That’s far above the typical 3-5% most advisors recommend.

His reasoning for no bonds or cash centers on longevity: if people live longer than traditional retirement planning assumes, they need portfolios that can maintain purchasing power over extended time horizons.

(His reasoning for Bitcoin is that he likes to make more money than gold holders over time 😉 Don’t worry, we love both assets here)

Regarding the longevity argument, Edelman had this to say on the Pomp Podcast: 

"The notion of retiring at 65 and living to 85, that works—but if you retire at 65 and live to 105, is your money going to last as long as you do? The answer is, for most Americans, ‘no.’” 

The longevity argument leads us to two conclusions: retirement as we know it might be obsolete, and investors need more growth assets for longer periods to offset taxes and inflation.

Bitcoin advocates argue it serves as "digital gold,” which just means it’s a scarce asset that can't be debased by central banks. 

With only 21 million Bitcoin ever to be created, it offers scarcity that government bonds simply can't match.

President Trump's recent moves to allow alternative assets like gold and Bitcoin in 401(k) retirement plans could also accelerate this trend.

While Bitcoin gets the headlines, gold's resurgence has been quieter but more institutional.

Gold hit all-time highs in 2024, driven not just by retail investors but by central banks, pension funds, and sovereign wealth funds. In 2025 alone, gold has gained 42.68%. The metal has outperformed bonds over the past five years and provided genuine diversification during the 2022 selloff.

Unlike Bitcoin, gold has thousands of years of history as a store of value. It's not dependent on technology, regulatory approval, or market adoption. In an era where the US runs trillion-dollar deficits and the Federal Reserve's balance sheet remains historically elevated, gold offers protection against currency debasement that bonds simply cannot.

The Morgan Stanley 60/20/20 framework recognizes this reality. Gold provides the portfolio insurance that bonds used to offer: protection against inflation, currency risk, and systemic financial stress.

Take a look and see if any of these approaches resonate with you. It could be time to rebalance the old portfolio if so.

This approach treats both gold and Bitcoin as complementary hard assets, with gold providing stability and Bitcoin offering growth potential.

A more conservative approach that maintains some traditional fixed income while adding hard asset protection.

Designed for investors who believe they'll need growth assets working longer than traditional retirement models assume, but don’t want to dabble in altcoins.

The investment landscape has fundamentally shifted. The assumptions that made 60/40 work (low inflation, falling rates, reliable correlations) may not return anytime soon.

That doesn't mean you should abandon diversification. It means evolving it to include assets that can maintain purchasing power when currencies weaken and traditional bonds fail.

The new portfolio models aren't perfect. Gold and Bitcoin can be volatile. Alternative assets require more active management. But they're designed for the economic environment we're actually living in, not the one that existed years ago.

For investors still using traditional allocations, the question to ask yourself is how to adapt to a world where cash loses value, bonds offer little protection, and hard assets have become essential portfolio components.

The 60/40 portfolio served investors well when bonds provided both income and diversification. Those days appear to be over, but there’s so much opportunity available.

That’s all for today’s special edition. We hope you got value from it. Reply and let us know if you did. 

Until next week,

— Brandon & Blake