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- RetirementAdd private markets to an IRA
- Managed portfoliosLet us manage your private markets portfolio
- Direct investmentsBrowse available investments
- RetirementAdd private markets to an IRA
Key takeaways
- Financial advisors use the “60-40” portfolio allocation – 60% stocks and 40% public fixed income to simplify asset allocation.
- The wealthiest Americans have typically allocated a portion of their portfolios to alternative assets in search of diversification and a higher risk-return profile.
- Willow Wealth’s platform offers most investors the potential to optimize their portfolios with the opportunity to create a 60-20-20 allocation.
The 60/40 portfolio structure has been a staple investment strategy, pushed by scores of financial advisors for its relative straightforwardness and user friendliness. The recommendation was to allocate 60% of your portfolio in stocks and the rest in public fixed income securities (sovereign and corporate bonds), in order to provide a balanced mix of upside potential (through equities) and downside protection (through fixed bond returns).
As a savvy investor, you surely noticed that bond yields have been tanking post the great financial crisis (GFC), as central banks tried to support growth by cutting short-term rates and stepping up to buy large amounts of sovereign debt. A typical US Treasury security, which used to yield 4-5% for the twenty years leading up to the GFC, now returns approximately 2% – hardly a return at all and much below the current accelerating rate of inflation. Bonds have appreciated to the extent that the remaining upside is very limited – after all, how much lower can rates go, unless you want to experiment with negative rates as Europe and Japan did? If you had invested in bonds in 2007, your returns would have been quite fabulous. But it would also be time to consider selling, as rising inflation and full employment are pushing the Federal Reserve and other major central banks to target higher short-term rates, with the potential for longer-term rates to also increase.
As equity investments continue to be the cornerstone of a portfolio – after all, US markets return on average 10% a year – the fixed income part of your portfolio deserves a little revamping, while keeping a healthy level of diversification and perhaps even increasing it.
Enter the 60-20-20 allocation
While downside protection suggests you leave 20% of your assets invested in publicly traded fixed income securities – could be corporate bonds, sovereign or quasi-sovereigns – you may wish to consider allocating the remaining 20% to alternative assets. After all, many of the top 1% of the US population have an allocation to alternatives, and it has worked well for them.
Alternative investments can provide typically uncorrelated returns, potentially lower volatility, and the benefits of a longer time horizon, and in some cases have the potential to offer higher returns compared to more liquid public market instruments.
Alternatives carry their own risks, and you will have to find the specific allocation that is right for your investment needs and for your risk profile.
Here are a few common alternative asset classes to consider:
Real Estate – Many already invest in real estate through their primary home. Investors may consider investing in real estate through a second property or through managed indirect real estate opportunities, a way to generate cash flow via rents and capital appreciation if real estate prices increase.
Private Equity and Credit – Private markets may include private equity and private credit opportunities, and are by definition less liquid and less easily accessed, which comes with trade-offs. Among the potential benefits are more limited competition for investors and returns that are generally less sensitive to headline and short-term market risk. While private markets have traditionally been reserved for qualified investors, Willow Wealth has broadened access to them. Check our private market products.
Commodities – Commodity investments are usually a good inflation hedge. However, they are volatile and hard to access for retail investors. They also require a high level of technical knowledge.
Art & Collectibles – Art has been a popular store of value for decades and gives the investor some aesthetic pleasure with the potential for price appreciation over time. Willow Wealth offers access to fractional ownership through both a dedicated art fund, and through our registered fund offerings.
Learn more about the ways Willow Wealth can help diversify and grow your portfolio
1. What Is the Efficient Frontier? – Investopedia
2. Are You A Robot? – Bloomberg
3. What Is the Average Stock Market Return? – NerdWallet
What's Willow Wealth?
Willow Wealth enables you to build a private markets portfolio across real estate, private credit, private equity, and more. Our platform provides access to differentiated individual investments and diversified funds, as well as an automated investing solution that handles everything for you. Join more than 500,000 members and start investing today.
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View important footnotes related to performance, returns, duration, and other information about Willow Wealth investments
1 Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. All securities involve risk and may result in significant losses.
3 "Annual interest," "Annualized Return" or "Target Returns" represents a projected annual target rate of interest or annualized target return, and not returns or interest actually obtained by fund investors. “Term" represents the estimated term of the investment; the term of the fund is generally at the discretion of the fund’s manager, and may exceed the estimated term by a significant amount of time. Unless otherwise specified on the fund's offering page, target interest or returns are based on an analysis performed by Willow Wealth of the potential inflows and outflows related to the transactions in which the strategy or fund has engaged and/or is anticipated to engage in over the estimated term of the fund. There is no guarantee that targeted interest or returns will be realized or achieved or that an investment will be successful. Actual performance may deviate from these expectations materially, including due to market or economic factors, portfolio management decisions, modelling error, or other reasons.
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5 Represents the sum of the interest accrued in the statement period plus the interest paid in the statement period.
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9 Statistics as of the most recent month end.
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