Why A 60/40 Investment Strategy Is A Bad Idea In 2022?
When it comes to investment, there are hundreds of strategies that you can opt for. You can either diversify your portfolios by investing in long and short-term bonds, or you can put your entire revenue on a single asset and await a great turnaround. On the flip side, there is one more investment strategy that is relatively more popular than others. What is that, you may wonder? Well, it is called a 60/40 investment strategy. Essentially, there is no investment strategy that is all-encompassing. Every strategy has its pros and cons and as an investor, you must be okay with that.
Before we dive deep, let’s understand the term first. A 60/40 investment allocation strategy refers to a technique where investors hold 60% of their investment. The remaining 40% is invested in bonds. There is a widely accepted belief that a 60/40 investment allocation strategy is the most effective one.
Here is why:
- You are putting 60% of your investments in stocks; the remaining 40% goes into your bonds.
- The risk of loss is relatively lower than you would expect from other strategies.
- If you put 40% of your investments in bonds, you get the returns in the long run. Bit by bit, you get the turnaround that goes a long way.
- There is great potential for higher growth if you follow the 60/40 investment allocation strategy.
Thus, it goes without saying that if you follow the 60/40 investment allocation strategy, there are fewer chances that you will face any loss. That is one side of the coin. On the flip side, there are potential disadvantages of the 60/40 investment allocation strategy as well. That is what we are going to see in this article. We will analyze why a 60/40 investment allocation strategy is a bad idea in 2022.
The Minuses of a 60/40 Investment Allocation Strategy
According to highly qualified investors, a 60/40 investment allocation strategy is not a good idea in 2022. The reason they quote is twofold: Firstly, there is staggering inflation. Secondly, a looming recession awaits all investors. What lies ahead of them is uncertain.
Of course, if you are unsure about the future, taking a step can not take you any further. You may end up trapped in nowhere.
For instance, if you invested 60% of your investments in gold and the market price goes down the next day, you may find yourself in hot waters. This is why a 60/40 investment allocation strategy may not work for you – at least in 2022. It could be a great start under normal circumstances, though! But as the financial situation is heated this year, this may not be a favorable strategy for all investors.
Because the situation is pretty hard to handle, your investment journey may go south. So, it is better to stay away from a 60/40 strategy – at least for now.
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