A portfolio for a changing economy: JPMorgan offers alternative to the 60/40 strategy

Investors seeking optimal returns over the next 10-15 years should move beyond the classic 60/40 stock/bond portfolio, argues JPMorgan Asset Management in its long-term capital market outlook, published earlier this week. The bank proposes a different strategy with an emphasis on alternative investments. Below is the recommended portfolio mix.

JPMorgan estimates that this mix will deliver an average annual return of 7.5% over the next 10-15 years, versus just 7% for the 60/40 strategy. The return outlook is not its only attraction: the portfolio is more diversified, carries less risk, and has holdings that are less likely to move in lockstep, the bank explains.

Funds that can put these ideas into practice include the iShares MSCI ACWI ETF, which holds stocks from around the world; the Vanguard Total World Bond ETF, a global bond fund; the iShares Global REIT ETF, a real estate fund; the VanEck Real Assets ETF, which invests in commodities and infrastructure; and funds offering access to private equity and private credit, Business Insider notes.

The JPMorgan report identified three key trends that will shape returns over the next decade, affecting assets in different ways.

The first is a shift toward economic nationalism, which will add to inflationary pressure as countries become more protectionist and bring manufacturing back home. The bank notes that this will hurt bonds but benefit real assets. The second is technology adoption, particularly AI, which supports productivity gains and economic growth. This is positive for stocks, real assets, and alternative investments.

The third is capital rewiring: countries with trade surpluses are beginning to invest more at home rather than abroad. “As economies such as Germany deploy more of their capital at home to improve their economic resilience, this reduces the amount of excess savings seeking a home globally,” JPMorgan stated. This will push bond yields higher as U.S. Treasuries face greater competition for capital. U.S. stocks, however, should remain resilient and continue to attract foreign investors thanks to strong business performance.

Stocks and bonds in a 60/40 portfolio were originally intended to act as natural counterweights, with one offsetting losses in the other in periods of volatility, Business Insider writes. Historically, when stocks fell, bonds delivered stronger returns as investors sought refuge in safe-haven assets. With inflation high, however, bonds have suffered a prolonged slump as investors demand higher yields. Inflation also weighs on stocks.

“The volatility of inflation, rates and equities will likely move higher over our investment horizon. Meanwhile, we expect the stock-bond correlation to be more positive and unstable,” the JPMorgan strategists warned. “A resilient portfolio can lean into opportunities while drawing on diversifiers to cushion the impact of different types of shocks.”