Inflation Could Be Damaging to 60/40 Portfolios | ETF Trends

Inflation is or will weigh on a variety of assets and portfolio structures. Advisors shouldn’t bet on 60/40 making it through a period of extended inflation unscathed.

That’s particularly true with the Federal Reserve potentially considering multiple interest rate hikes in 2022 to cool rising consumer prices. Higher rates could be damaging to the 40% fixed income sleeve. Fortunately, there are ways for advisors to help clients survive and thrive in these times of inflationary pressures.

Those options include the Siegel WisdomTree Portfolios, which include two model portfolios. One of those models doesn’t include any fixed income exposure — something to consider, as the “40” in 60/40 could encounter problems.

“The strategies, in which portfolios hold 60% stocks and 40% bonds, have produced just two down years since 2007. And during the pandemic they’ve been beating averages dating back to the 1980s. The asset allocation mix posted a 17% return in 2020 and is on course for another double-digit return this year. But it posted losses in September and November and is down 0.4% so far in December, just as the Federal Reserve started signaling a hawkish shift,” reports Bloomberg.

When it comes to inflation fighting, the Siegel WisdomTree Portfolios have the goods, indicating that these are compelling alternatives to the standard 60/40 split.

For example, the Longevity Model Portfolio recently added the WisdomTree Managed Futures Strategy (WTMF) to its lineup. Managed futures often reduce portfolio correlations — a favorable trait in inflationary climates. Speaking of inflation, managed futures offer some protection against rising consumer prices.

WTMF’s inclusion in the Longevity Model Portfolio bolsters that portfolio’s inflation-fighting credentials because it joins the WisdomTree Enhanced Commodity Strategy Fund (GCC). Commodities are a go-to asset class in inflationary settings.

“Finding an alternative (60/40) has also proved challenging. For all the talk about the potential demise of the strategy, assets such as private equity, real estate and private markets are far less liquid and less readily available to retail investors saving for retirement,” according to Bloomberg.

It was challenging in previous eras of high inflation, but this time around, advisors can turn to the Siegel WisdomTree Portfolio for superior inflation-fighting capabilities as well as solid avenues for reducing portfolio correlations.

For more news, information, and strategy, visit the Model Portfolio Channel.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.