When BlackRock CEO Larry Fink speaks, markets listen. His latest proclamation? The financial roadmap followed by three generations of investors – the traditional 60/40 portfolio – is officially outdated.
When BlackRock CEO Larry Fink speaks, markets listen. His latest proclamation? The financial roadmap followed by three generations of investors – the traditional 60/40 portfolio – is officially outdated.
According to Fink, who manages the world’s largest assets, a better investment model of 50/30/20 is more suitable for this increasingly complex financial landscape.
This model allocates 50% for equities, 30% for bonds, and 20% for other investment alternatives, including real estate and private equity investment portfolios. While this is a major shift from traditional financial standards, for the regular investor, institutional markets have been leaning towards alternative markets for some time now.
The 60/40 portfolio strategy served investors well for its time. But how did this era come to an end? Let’s take a closer look at the history of the 60/40 portfolio.
Introduced following World War II, the 60/40 investment portfolio model diversified investment into 60% stocks (for growth) and 40% bonds (for stability). Nevertheless, it had to undergo numerous cycles of change and refinement on its way to its peak. Sadly, its drawbacks proved too great to ignore with the simultaneous fall of both bonds and stocks in 2022.
Much of investment thrives on the back of historical data and the information investors as well as financial decision makers have available to them. For BlackRock, the year 2022 was an eye-opener, exposing the 60/40 portfolio as bound to become a relic of the past, notably susceptible to:
As a retail investor, understanding what most successful institutional investors have known for a while now will give you a kind of leverage most ordinary investors don’t have, the 50/30/20 budgeting strategy being a prime example.
Let’s break it down.
Today’s investment landscape requires a more nuanced investment strategy, as reflected in BlackRock’s 50/30/20 portfolio structure. The three asset categories which correlate to this allocation include:
The game-changing pivot toward alternatives in BlackRock’s strategy is not by chance. On the contrary, it follows the same approach that top institutional asset managers like David Swensen have employed for many years.
Case in point – David allocated a minimum of 40% (not 20%) yearly to alternative investments for Yale University’s Endowment. This has yielded 11.3% annualized returns for 20 years as of 2022, irrespective of economic downturns.
The benefits of these alternative allocations include:
Despite the numerous benefits it yields, alternative investments have consistently remained out of reach for retail investors. Essentially, there are several barriers often enforced by traditional private markets bringing about exclusivity for institutional investors.
For traditional markets with private assets like real estate, liquidity barriers come in the form of fund requirements, including:
Another barrier for retail investors involves transparency with fees and structures, which often comes after they’ve managed to scale the hurdle of the liquidity barrier.
Consider that the traditional standard fee structure, which demands a 2% management fee and an additional 20% performance fee, significantly drains returns on investment for alternative investments. Compare these to 0.03% and 0.10% annual fees for ETF investments, saving more of the investor’s capital.
We are all well familiar with the widespread strict collateral requirements, high rejection rates for small businesses, lack of transparency, high borrowing thresholds, steep interest rates, and hidden fees.
The barriers hindering individual investors from participating in alternative portfolios present nothing but opportunities. Thankfully, a peer-to-peer business lending platform like Maclear AG is dismantling the structural barriers that have kept those investors from accessing the same portfolio strategies as Yale’s legendary endowment.
Starting with the access barrier, Maclear AG has developed an approach that allows retail investors access to alternative investments. Maclear did not just drop the entry threshold. It’s supercharged operations with a number of shrewd mechanisms:
To solve the liquidity barrier, Maclear AG has employed a forward-thinking technological approach that has generated $17,875,854 for an average return of 14.9%. Proper diversification through various pre-vetted investment pools has allowed 4,251 investors to decide on which combination of projects to invest in.
Larry Fink’s affirmation of the 50/30/20 allocation investment model is not a new trend to start a lengthy analysis to determine whether it truly works. Frankly, a plethora of institutional investors have applied it with dramatic success over the course of many decades.
The only difference here is that platforms like Maclear AG have brought it within the reach off retail investors with the opportunity to enjoy the same benefits big-time investors have enjoyed for so long.
So, if you are an individual investor looking to expand beyond the now obsolete 60/40 investment allocations, Maclear AG offers you practical implementation tools along with educational resources. The 60/40 has served the past generation of investors. However, the 50/30/20 budget is here to serve the new investment generation, and with Maclear AG, even individual investors have nothing holding them back.
