A look at how asset allocation has changed over the years.

Asset allocation strategies have evolved significantly over the past 25 years. In the early-2000s, the traditional 60/40 portfolio (60% equities and 40% bonds) was a dominant strategy, as it offered a balance between stability and growth.

The 2008 financial crisis, however, together with technological advancements and the COVID-19 pandemic reshaped the investment landscape. Asset allocation strategies are further influenced by post-pandemic, structural trends such as decarbonisation, deglobalisation, and demographic shifts.

#1. Is the 60/40 allocation still applicable?

Historically, the 60/40 allocation relied on the inverse correlation between stocks and bonds to mitigate risk. During periods of high inflation and rising interest rates, however, both asset classes have shown positive correlations, which weakens the effectiveness of this strategy.

According to BlackRock, in their 2023 Midyear Global Outlook, traditional portfolios may struggle to deliver the same returns going forward, particularly in a world of persistent inflation and low real yields.

Source: BlackRock Investment Institute, 2023 Midyear Global Outlook

#2. The importance of a diversified portfolio

Diversification is still a fundamental principle of investing. Investors can reduce risk and achieve more consistent returns by spreading investments across asset classes, geographies, liquidity profiles, and industries.

A well-diversified portfolio balances growth-oriented assets such as equities with stabilising assets, while also incorporating alternatives to hedge against volatility in the markets.

The goal is to build a resilient portfolio that can withstand economic shocks while participating in growth across different regions and sectors.

Source: BlackRock Private Credit Fund

#3. The role of alternative assets

There is a critical role played by alternative investments in portfolio diversification. Private equity, private credit, commodities, and real estate offer low correlation with traditional markets, which improves resilience during downturns.

Structural trends such as decarbonisation, deglobalisation, and demographic shifts are expected to sustain inflationary pressures.

Hence we believe that alternatives are a crucial component of modern diversified portfolios.

BlackRock has taken significant steps to integrate private equity and credit into its model portfolios. These portfolios combine publicly traded stocks and bonds with private investments, which makes alternative assets more accessible to individual investors.

BlackRock’s recent takeovers, including a deal worth USD 12 billion for private credit firm HPS Investment Partners, reflect its commitment to expanding its private markets capabilities. The firm plans to allocate around 15% of these portfolios to private assets.

Source: BlackRock Incorporates Private Investments Into Individual Portfolios

#4. What alternative investments are

Alternative investments refer to financial assets outside traditional categories (stocks, bonds, cash). Examples include private equity, where investors fund private companies, and private credit, which involves lending to businesses outside conventional banking channels.

These investments often require higher minimums and are less liquid, but can deliver superior returns and diversification benefits.

BlackRock, among other institutional investors and asset managers, has increased allocations private markets. In 2023 the firm announced strategic expansions into private equity and private credit, which demonstrate the growing appetite for these assets.

Conclusion: What does a diversified portfolio look like in 2025?

A modern diversified portfolio may look like this:

Equities: Domestic and international stocks across various sectors.

Fixed income: Government and corporate bonds for stability.

Alternatives: Private equity, private credit, hedge funds, real estate, and commodities for diversification.

Thematic investments: ESG, tech disruption, demographic trends.

Cash and short-term investments: For liquidity and risk management.

This approach ensures resilience against market volatility and aligns with long-term financial goals by capturing diverse sources of return. Adaptability and diversification remain the keys to success as the investment landscape evolves.

Sources: Goldman Sachs Asset Management’s 2024 Outlook: Embracing New Realities

 

What are your thoughts about asset allocation? 

 

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