Resource Search

The traditional 60/40 portfolio—a mix of 60% stocks and 40% bonds—is suffering through one of its worst periods in history. Although the demise of the 60/40 portfolio has been predicted before, investors may now face a new regime of high inflation and rising correlations between equities and fixed incomes. For investors in hard-hit 60/40 portfolios, there is an alternative—the 80/20/40 portfolio with an option overlay—that may provide diversification without triggering adverse tax consequences, and may exhibit a better risk-reward profile, with lower volatility.

With below-average returns expected over the next five years, it’s clear that getting asset allocation right will be essential to delivering on the key challenges of our time: achieving purchasing power parity and avoiding any permanent capital impairment. By using a forward-looking, historically-aware framework for developing long-term return forecasts across asset classes, there are key considerations and underlying themes for family office and long-duration investors to keep in mind to help tackle their strategic and tactical portfolio construction decisions.

Artificial Intelligence (AI), which is being considered “The Fourth Industrial Revolution,” is the latest innovation and technology disruption fueling growth and reshaping societies alike. While there are investment opportunities where big winners are reaping the benefits of AI, the future of AI remains uncertain. In this early stage of AI advancement, it is important to understand the inherent risks of concentrating portfolios in themes and trends—including AI—that are likely to evolve and shift over time.

As families and family offices build their investment portfolios, they should consider private equity (PE) and venture capital (VC) with an eye on technological innovation. However, building a portfolio that incorporates both PE and VC investments is not straightforward. It requires skill and discipline. By looking at 2020 when private investments were among the top-returning assets classes, we learn more about how these investments have benefited institutional portfolios and provide some high-level tips on how to build winning portfolios.

In this uncertain environment, it is critical for investors to know what they own, have a strategy within their portfolio, and are diversified in their holdings. Most importantly, they should take advantage of the income that is there now.

Investors should not design portfolios to survive markets on average, but rather to survive every day and, most importantly, the worst days. As Benjamin Graham said, “the essence of portfolio management is the management of risks, not the management of returns.” At the core of a robust portfolio construction framework is to take a risk conscious approach—where investors must bear risks intelligently.

In this exclusive chat with Mellody Hobson, the President and co-CEO of Ariel Investments, speaks candidly about the importance and value of diversity in finance—how being color brave can improve business and society at large. Mellody shares personal stories and lessons learned from her investment career, including the disconnect that is felt between the diversification of investment portfolios and the lack of it in the hiring process in the industry. She also discusses investment trends and the empowering gift she received at the start of her career.