Asset allocation strategies have evolved significantly over the past 25 years.

In the early-2000s, the traditional 60/40 portfolio (60% equities and 40% bonds) was a dominant strategy as it offered a balance between stability and growth.

The 2008 financial crisis, however, together with technological advancements and the pandemic reshaped the investment landscape.

Asset allocation strategies were further influenced by post-pandemic structural trends such as decarbonisation, deglobalisation, and demographic shifts.

1. Is the 60/40 allocation still applicable?

Historically, the 60/40 allocation relied on the inverse correlation between stocks and bonds to mitigate risk.

During periods of high inflation and rising interest rates, however, both asset classes have shown positive correlations, which weakens the effectiveness of this strategy.

According to BlackRock in their 2023 Midyear Global Outlook, traditional portfolios may struggle to deliver the same returns going forward, particularly in a world of persistent inflation and low real yields.

2. The importance of a diversified portfolio

Diversification is still a fundamental principle of investing. Investors can reduce risk and achieve more consistent returns by spreading investments across asset classes, geographies, liquidity profiles, and industries.

According to BlackRock Private Credit Fund, a well-diversified portfolio balances growth-oriented assets such as equities with stabilising assets while also incorporating alternatives to hedge against volatility in the markets.

The goal is to build a resilient portfolio that can withstand economic shocks while participating in growth across different regions and sectors.

3. The role of alternative assets

There is a critical role played by alternative investments in portfolio diversification.

Private equity, private credit, commodities, and real estate offer low correlation with traditional markets, which improves resilience during downturns.

Structural trends such as decarbonisation, deglobalisation, and demographic shifts are expected to sustain inflationary pressures.

BlackRock has taken significant steps to integrate private equity and credit into its model portfolios. These portfolios combine publicly traded stocks and bonds with private investments, which makes alternative assets more accessible to individual investors.

4. What alternative investments are

Alternative investments refer to financial assets outside traditional categories (stocks, bonds, cash).

Examples include private equity, where investors fund private companies, and private credit, which involves lending to businesses outside conventional banking channels.

These investments often require higher minimums and are less liquid, but can deliver superior returns and diversification benefits.
What a diversified portfolio would look like in 2025

A modern diversified portfolio may look like this:

• Equities: Domestic and international stocks across various sectors.
• Fixed income: Government and corporate bonds for stability.
• Alternatives: Private equity, private credit, hedge funds, real estate, and commodities for diversification.
• Thematic investments: ESG, tech disruption, demographic trends.
• Cash and short-term investments: For liquidity and risk management.

This approach ensures resilience against market volatility and aligns with long-term financial goals by capturing diverse sources of return. Adaptability and diversification remain the keys to success as the investment landscape evolves.

This article was written by Keah Eewen for MyPF. To simplify and grow your personal finances, follow MyPF on Facebook and Instagram.

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