The Death of Diversification? Why the 60/40 Model Failed
The traditional 60/40 portfolio model, long considered a cornerstone of balanced investing, is facing unprecedented challenges. For decades, this strategy relied on the negative correlation between stocks and bonds to provide stability during market downturns. Yet the macroeconomic landscape of the mid-2020s has shattered this assumption.
Sustained higher interest rates, geopolitical turmoil, and persistent inflation have eroded the defensive qualities of fixed income. Equities, meanwhile, remain heavily concentrated in a handful of U.S. names, amplifying risk. The result is a perfect storm where both asset classes MOVE in lockstep downward—leaving investors without shelter.
This paradigm shift demands new approaches. Sophisticated allocators are increasingly turning to alternative assets and non-correlated return streams to rebuild portfolio resilience. The era of passive diversification may be over.
