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The tech mantra of “adapt or perish” could also be good advice for your investment portfolio. And anyone utilizing what is known as a “60/40” portfolio strategy should take note of the changes coming.
“For the last 40 years, whenever we go risk off, so down in stocks, bonds have gone up,” said Lawrence “Larry” McDonald, founder of the Bear Traps Report, during a conversation with Yahoo Finance Executive Editor Brian Sozzi on the Opening Bid podcast (see the video above or listen below). “That’s history.”
However, times have changed. “The old portfolio was your 60/40 stocks, bonds [and a lot of] growth stocks,” he said. “That was the 2010-to-2020 portfolio.”
The author of the Bear Traps Report, McDonald helps investors demystify markets and politics while sleuthing the right investments for themselves. He has also authored two books that tackle this phenomenon, including “How to Listen When Markets Speak” in 2024.
The allocation of 60% stocks and 40% bonds was logical because it allowed investors to balance growth with stability. It has served investors since its introduction as part of the Modern Portfolio Theory in the 1950s by American economist Harry Markowitz. The approach has been popular for investors with longer-term timelines and some ability to tolerate risk.
In the past, when stocks took a beating, bonds stepped in to stand in the gaps. For instance, when Lehman Brothers fell and the Great Recession took hold in 2008, investors lost $8 trillion in stock value but made $3.5 trillion back in bonds. Similarly, during COVID-19, the $9 trillion investors lost in stock was somewhat offset by the $4 trillion they gained on bonds.
Since February 19, however, investors have lost an estimated $9 trillion, but bonds have yet to offset the losses. This stark contrast “has a lot to do with [trust],” McDonald said. “Congress broke the back of trust around the $37 trillion of debt, but that’s up $11 trillion the last four years.”
The 10-year Treasury (^TNX) yield has risen to 4.3%, Just last week, as tariff concerns rippled through markets, the 10-year yield advanced 50 basis points to about 4.5% — the most in more than two decades.
“Trump came along with a sledgehammer and said, ‘We’re going to change the world order on trade,'” McDonald said. Plus, global investors “have just been hit over the head with this huge amount of debt the United States has.”
