Last week at the Canadian Securities Trading Association (CSTA) conference, I shared a panel with industry peers to discuss asset allocation and portfolio construction. A recurring theme — raised both in my session and across other panels — was whether the traditional 60/40 balanced portfolio is still the reliable solution it once was. That conversation inspired this post.
In the last several decades, we have seen portfolio construction evolve to adapt to increasingly complex markets. Thirty years ago, investors could simply buy a portfolio of bonds, clip the coupons, and earn a reliable return year after year. As interest rates grinded lower, it forced investors out the risk curve, giving credence to the 60/40 model. The “balanced” portfolio was elegant: when equities fell (in anticipation of a recession), central bankers eased interest rates, which lifted bonds. As the economy recovered, equities did the heavy lifting while bonds pared back. The two counteracted each other, giving investors a relatively steady path to long-term growth. For a long time, it worked.
Then came 2022. Inflation — unseen since the 1970s — forced central banks to flip the playbook, hiking rates and shrinking its balance sheet through quantitative tightening (QT). The result: bonds and equities fell together, leaving investors with the uncomfortable reality that the old diversifier no longer diversified.
Looking ahead, the debt overhang in developed markets makes it hard to imagine a future without recurring inflationary pressures — or at least ongoing currency debasement. Portfolios are expected to need more than just stocks and bonds. Over the past five years, the SPDR S&P 500 ETF Trust (SPY) has spent long stretches being positively correlated with the iShares 20+ Year Treasury Bond ETF (TLT), suggesting bonds may no longer provide the ballast investors once relied on.
SPY vs. TLT: From Diversifiers to Dance Partners
CHART GOES HERE
Source: Bloomberg from August 22, 2020 to August 22, 2025
The Next Evolution
It’s often debated whether the 60/40 portfolio is dead. Dead may be too strong — let’s call it outdated. The future of portfolio construction is about real diversification: across public markets, private markets, liquid alternatives, and real assets like infrastructure, gold, and yes, even digital assets.
It’s also about evolving the framework. Relying on Strategic Asset Allocation (SAA) tied to benchmarks can be misguided. If success is defined by beating an index, it often requires overloading on risk. Instead, investors should adopt a Total Portfolio Approach (TPA), long embraced by institutions.
With TPA, the process begins by defining investor outcomes — whether that’s tax-efficient income, volatility targeting, or achieving a return objective. Portfolios are then reverse-engineered to deliver those outcomes, spreading exposures not just across asset classes, but also across factors and risks. In this framework, success is measured by meeting objectives — not benchmarks.
Life After 60/40
The traditional 60/40 portfolio may face challenges in returning in its old form. The world has changed — debt levels are higher, inflation is more persistent, and correlations no longer behave the way they once did. Clinging to the traditional definition of “balanced,” risks leaving investors exposed to the very forces reshaping markets.
The next phase of portfolio construction demands bigger thinking and broader toolkits. That means going beyond public markets to include private assets, alternatives, and real assets. It also means shifting the framework — measuring success not by whether you’ve beaten a benchmark, but by whether you’ve met (and consistently meet) the outcomes that actually matter.
The lesson is clear: portfolios must evolve with the environment. We believe embracing an institutional mindset — one that starts with investor objectives and builds across asset classes, factors, and risks exposures — is no longer optional. It’s the path forward for anyone serious about navigating today’s markets and preparing for tomorrow’s.