“Adapt or perish” is a tech motto that might also apply to your investing portfolio. Additionally, anyone using the so-called “60/40” portfolio technique ought to be aware of the upcoming revisions.
Lawrence “Larry” McDonald, the creator of the Bear Traps Report, stated, “For the last 40 years, whenever we go risk off, so down in stocks, bonds have gone up,” in an interview with Yahoo Finance Executive Editor Brian Sozzi on the Opening Bid podcast (see the video above or listen below). “History.”
However, times have changed. “The old portfolio was your 60/40 stocks, bonds [and a lot of] growth stocks,” he said. “That was the 2010-to-2020 portfolio.”
In order to help investors choose the best assets for themselves, McDonald, the author of the Bear Traps Report, demystifies politics and markets. Two of his publications, notably “How to Listen When Markets Speak” from 2024, address this issue.
It made sense to allocate 60% of assets to stocks and 40% to bonds since this allowed investors to strike a balance between stability and growth. Since its inception by American economist Harry Markowitz in the 1950s as a component of the Modern Portfolio Theory, it has benefited investors. Investors with longer time horizons and a modicum of risk tolerance have favored the strategy.
In the past, when stocks took a beating, bonds stepped in to stand in the gaps. For instance, when Lehman Brothers fell and the Great Recession took hold in 2008, investors lost $8 trillion in stock value but made $3.5 trillion back in bonds. Similarly, during COVID-19, the $9 trillion investors lost in stock was somewhat offset by the $4 trillion they gained on bonds.
Bonds have not yet been able to make up the estimated $9 trillion that investors have lost since February 19. According to McDonald, this striking disparity “has a lot to do with [trust]”. “Congress betrayed confidence regarding the $37 trillion debt, which has increased by $11 trillion over the past four years.”
The yield on the 10-year Treasury (^TNX) has increased to 4.3%. The 10-year yield increased 50 basis points to over 4.5% last week, the highest level in almost 20 years, as worries about tariffs shook the markets.
“Trump came along with a sledgehammer and said, ‘We’re going to change the world order on trade,'” McDonald said. Plus, global investors “have just been hit over the head with this huge amount of debt the United States has.”
