When traditional portfolios can’t keep up with the times… it’s time to rethink what will save your retirement.
Something I’ve heard a lot this year is “60/40 just isn’t cutting it anymore.”
This traditional asset allocation plan is supposed to help investors benefit from the best of both worlds – growth from stocks (60% portfolio allocation) and stability from bonds (40% allocation).
The conventional wisdom is that when stocks fall into a bear market, bonds are supposed to rise and balance out the volatility.
Then along came 2022, when bonds fell as much as – if not more than – stocks.
So you might be wondering: Is it time to try something else?
Here at the Intelligent Income Daily, our focus is on income. That’s what we believe will help you find a safe path to long-term wealth – through all market conditions.
And today, I’ll show you how adding one asset class could help you better prepare for today’s environment than traditional portfolio models.
Better Than Worrying About 60/40
Even Wall Street institutions know we can’t rely on the same old solutions.
While LPL Financial thinks the case for the traditional 60/40 portfolio isn’t dead yet… it admits it’s had a “tough year.”
It concludes that the 60/40 portfolio might be only a starting point for investors… And they should look for opportunities to improve their risk profiles through greater diversification, active management, or alternative investments outside of traditional stocks and bonds.
Last week, I told you what I think of the 60/40 portfolio: Don’t spend time worrying about it.
Instead, focus on building a sustainable, growing stream of passive income that can support you in retirement. That way, you don’t have to worry about selling assets for cash when the markets fall.
That’s what we do at Wide Moat Research. My team and I focus on identifying the best opportunities for safe, high-quality, growing income producers. And some of the best income investments are found in assets that aren’t traditional stocks and bonds.
Specifically, I’m talking about real estate investment trusts (REITs).
Commercial real estate is the third largest asset class, representing 15% of the U.S. investment market. So it’s natural to want exposure.
Early in my career, I was a real estate developer. So I’ve experienced firsthand the headaches and risks of owning individual properties. It’s not something average investors want to deal with.
But as a tax-efficient, income-oriented vehicle, REITs open up the world of real estate right through a brokerage account. They allow investors to enjoy the benefits of scale and diversification in an inflation-resistant asset class.
My Favorite Pick to Diversify Into Real Estate
It’s no wonder more and more people are turning to REITs as a way to further diversify their portfolio.
A recent Morningstar analysis found the optimal portfolio allocation to REITs ranged from 5% for moderately conservative portfolios to 18% for aggressive investors.
And a Chatham Partners Research study found 83% of financial advisors recommend an allocation to REITs for all investors – from early career through retirement. These trusted managers know REITs are an important way to diversify a portfolio…
Real estate goes through economic cycles that are different from traditional stocks and bonds. And they provide competitive returns with high, growing income and capital appreciation.
So if you’re still sticking to a 60/40 portfolio, it’s time to think about changing things up a bit and diversifying into real estate with REITs. The reliable income streams they provide can help give you peace of mind when the markets go crazy.
My personal favorite REIT right now is Realty Income (O). This REIT owns more than 11,000 properties across America and Europe. Its tenants are recession-resistant businesses like grocery stores, convenience stores, and dollar stores.
Realty Income is an incredibly reliable dividend payer that sends investors a check every month. In fact, it trademarked the name “The Monthly Dividend Company®.”
Even better, the company has a tradition of raising its dividend every three months. In fact, it just announced its 100th consecutive quarterly dividend increase. That’s 25 years of steadily increasing income. And I’m willing to bet it’ll keep growing for the next 25 years and beyond.
And that’s performance I’d want in my portfolio that’s more consistent than any 60/40 portfolio.
Happy SWAN (sleep well at night) investing,
Editor, Intelligent Income Daily