Experts say one of the most common investment strategies, the 60/40 portfolio, should include diversity if 🏅investors want it to withstand market volatility.

This investment portfolio has been the go-to diversified portfolio for investors, as it separates investments into 60% equities and 40% bonds or other 澳洲幸运5官方开奖结果体彩网:fixed-income offerings. However, experts say a series of 澳洲幸运5官方开奖结果体彩网:bear markets in the 2000s and historically low interest rates have 澳洲🅺幸运5官方开奖结果体彩网:worsened the portfolio's performance in rไecent years. Analysts warn that the trend could continue if the market volatilit𒉰y spurred by President Donald Trump's tariffs persists.

For more information on the current state of the 60/40 portfolio, Investopedia talked to Nga Pham, a senior research fellow at the Monash University Center for Financial Studies, who researched the investment strategy in several markets. The intꦿerview has been edited for brevity and clarity.

INVESTOPEDIA: Why does the 60/40 portfolio seem to be underperforming over the last several years?

NGA PHAM: It depends on the correlation between bonds anꦇd equity.🐈

What we saw in 2022 is that both bonds and equity went down in most major markets at the same time. So the 60/40 portfolio delivered very poor performance because it didn't have that level of protection from the bond investment of the portfolio. 

If you look at the 60/40 portfolio, if you invested in it since the 1990s, the real return average is 6.1%, which is very good. If you look at longer term [over 100 years], the return is slightly lower. So we understand🤪 that there might be a number of years wh🦩en the 60/40 portfolio underperforms in certain benchmarks, but in the long run, the performance is still very satisfactory.

INVESTOPEDIA: How could Trump's tariffs impact the performance of the 60/40 portfolio?

PHAM: Typically, investors, if they are concerned about the equity markets, will also try to find some safe investment from the fixed income side. Typically, the U.S. fixed inc🦂ome market would be where investors should go during a fickle situation.

However, because of what is happening in the United States—because of that, perhaps, lack of, or the reduced cr♏edibility in the United States' policies and also all these politicꦫal tensions that are being created—there is lower confidence in the U.S. government bond.

If credibility goes down, we expect the risk profile of the U.S. goveౠrnment bond will go up [because] U.S. government bonds are now perceived to be more risky than they used to be. An investor will demand higher returns if they are still wil✱ling to invest in U.S. government bonds, and that will push the price of the bond down.

So this is a part of a mixed picture, because equity doesn't seem to be very promising. But at the same time, the major components of the bond market also don't seem to be providing good options either.

So perhaps in the next few years is not a time when investors can actually expect high return performance, even for the 60/40 portfolios.

INVESTOPEDIA: What are some ways investors can improve the performance of their 60/40 portfolio?

PHAM: Within that balanced structure, investors should be thinking about: How should they further diversify? So it's not just that overall structure that gives them the diversification benefits, but diversification can also come from: What are the components of the 60? What are the components of the 40?

The first thing we tested was, what if you expand from a domestic🌳 60/40 portfolio to an international 60/40 portfolio? So 60% is still equity, but now it includes domestic and intern💯ational equities. And we saw a benefit.

There are also ways that we canꦦ structure the portfolio so that the growth asset is not just equity.

What we did in the research was to say, 'Okay, what if we introduce commodities into the portfolio?' Because a commodity, by definition, is also considered more in the growth basket, so relatively, they're not defensive. We also introduce other types of asset classes, for example, listed equities, private equity, infrastructure, and real estate. The benefits of that diversification would actually be higher compared to just a pure equity portfolio.