investing · Personal Finance

Siegel: The 60/40 Split Is Outdated

The 60/40 portfolio divide between stocks and fixed income is old news.

That’s the word from Jeremy Siegel, the Wharton professor and renowned author of Stocks For The Long Run. He made the point on CNBC that our enduring low interest rate environment means you need a higher concentration of equities in an investment portfolio. What’s the new ratio? It swings in at 75/25 percent, stocks to fixed income.

Here’s the video:

As a side note, the author of How a Second Grader Beats Wall Street uses the 60/40 split for his son’s portfolio, but the 40 percent is actually made to include an international equity fund. He puts 60 percent in VTSMX, 30 percent in VGTSX, and 10 percent in VBMFX. While the regular stock fund (VTSMX) performed well for the period discussed in the book, the VGTSX lagged dramatically.

The ultimate decision on allocation should relate to the investor’s age and specific time frame. Unfortunately, ultra-low rates will make it harder for older folks to adjust because their fixed income returns stand to get decimated by the inflation figures.

But that’s ok, as long as we have good GDP.

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