The 60/40 model was once the linchpin of a typical investment portfolio. Jim Caron tells CNBC if he's still convinced now that rates are higher for longer.
2022 was the worst year the "60/40 portfolio" had since 1926 . But the traditional investment model, in which investors put 60% of their money in stocks and 40% in bonds, has enjoyed a strong rebound in 2023 — at least so far. Such portfolios gained 6.2% in January — a performance at the 96th percentile of all months since 1921, according to Bank of America . The gain was just below the 6.3% total return of the S & P 500 in the same timeframe, recouping losses from December.
The logic of holding a 60/40 portfolio for the long term appears "broken," he wrote in a Feb. 13 note. "The deflationary environment of recent decades seems to be ending amid the reversal of globalization, rise of ESG policies, inflationary demographics, and exhausted tech disruption. The shift from a 2% [average fed funds rate] world to a 5% world means structurally higher inflation and interest rates," he said.
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