Modernizing Portfolios: Embracing the 40/30/30 Framework (2024)

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Investing has evolved remarkably since 1952, when Modern Portfolio Theory was developed. As markets have expanded, each innovation - from mutual funds to index funds - has made investing more inclusive. We now stand at the cusp of the next leap: mainstream adoption of alternative investments.

The Changing Investing Landscape

A Bank of America study found that 80% of young investors are shifting toward alternatives. A YouGov study revealed that over half of investors plan to increase alternative allocations.

Investors increasingly seek to grow wealth to leave a better future for the next generation. But reaching these goals is getting harder with unpredictable markets and inflation. After decades of reliance, the traditional 60/40 stock-bond portfolio struggles to keep pace.

Alternatives like private equity and real estate, once siloed, now expand rapidly. New structures lower barriers to entry, allowing individual investors to add these assets. Alternatives promise diversification, reduced correlation to stocks and bonds, and predictable income streams to strengthen portfolios.

Introducing the 40/30/30 Framework

With alternatives going mainstream, the 40/30/30 portfolio arises as a new standard: 40% public equities, 30% fixed income, and 30% alternative investments. Institutions have tapped over 40% of alternatives for years - now, individuals can access these benefits.

Research shows that adding a 25% alternative allocation can raise 60/40 returns by 60 basis points. The 40/30/30 framework represents the next stage in the decades-long drive to make markets more inclusive.

To discuss modernizing your portfolio with alternative investments, contact me at 604.613.1693 or email me at aspitters@pfcwealthsolutions.com to arrange a free consultation.

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