Goldman Sachs has recently published an article to their website which gives investment and portfolio management tips in the face of inflation. The article begins as follows:
The tried and tested 60/40 formula for buy-and-hold investment portfolios got off to its worst start since World War II.
The 60/40 portfolio — split between the S&P 500 Index of stocks (60%) and 10-year U.S. Treasury bonds (40%) — fell about 20% in the first half of 2022, the biggest decline on record for the start of a year, according to Goldman Sachs Research. Such ‘balanced’ portfolios, meant to blend the higher risk of stocks with the relative safety of government bonds, often have different formulations, such as a mix of corporate credit or international stocks. But virtually all of them had one of their worst starts to a year ever, according to Christian Mueller-Glissmann, head of asset allocation research within portfolio strategy at Goldman Sachs.
Almost all assets were in a precarious position at the start of the year, as valuations for stocks and bonds were hovering around their highest levels in a century, Mueller-Glissmann says. Decades of tame inflation allowed central banks to drive interest rates ever lower to try to smooth out the business cycle, which in turn pushed assets from stocks to house prices higher. In fact, in the decade before the COVID-19 crisis, a simple U.S. 60/40 portfolio delivered three-times its long-run average for risk-adjusted returns.
To view the full article, click: “How to Overhaul the Tried-and-Tested Investment Portfolio When Inflation Soars“.
Posted by Nicholas Chuckas, Associate Editor, Wealth Strategies Journal.