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‘I’m 100% in equities’
That is CNBC’s Becky Quick explaining Thursday that she’s all but abandoned allocating any portion of her personal investment portfolio to bonds.
Her comments came during the financial network’s “Squawk Box” in a segment featuring Andy Sieg, head of Merrill Lynch Wealth Management, where the financial adviser said that he is extremely bullish on stocks in the coming year and feared that investors may be missing out on a “generational” rally.
Quick’s comments, however, are worth noting because they come as the widely held belief that the ideal portfolio mix — 60% equities and 40% in bonds — has increasingly come into question.
“You’re never going to make enough money if you have 40% of your money in bonds,” Quick said. “I have some cash so that I make sure that I have a cushion so that I’m not locked into it, but I don’t have anything in bonds.”
The CNBC anchor’s confession highlights not just a bull market that has run almost unceasingly to fresh records for a decade despite entering a period where experts question its longevity on statistical grounds, but also a persistent regime of ultralow and subzero bond rates.
Back in October, Bank of America declared the death of the 60-40 allocation, with a research report titled “The End of 60/40,” written by strategists Derek Harris and Jared Woodard, where they made the case that “there are good reasons to reconsider the role of bonds in your portfolio,” and to allocate a greater share toward equities.
And it hasn’t been just Merrill Lynch and its parent at B. of A. that have been reconsidering the standard 60-40 portfolio construction lately. A number of wealth managers and large financial firms have been rethinking the ideal mix of assets in recent months, notes MarketWatch’s Chris Matthews.
One point that has underpinned some of the thinking around portfolio retooling has been the bull market that has taken hold of fixed-income investments. Bond prices rise as yields fall and currently bonds yields are well below their historic norms and some fear that the traditional 40% allocation to fixed-income could leave investors vulnerable to a sharp downturn if yields begin a prolonged drift higher. The 10-year Treasury note yield TMUBMUSD10Y, -0.73% stands at 1.902%, compared with a historic average of 4.55%.
Meanwhile, the Dow Jones Industrial Average DJIA, +0.36%, the S&P 500 index SPX, +0.39% and the Nasdaq Composite Index COMP, +0.53% are trading at or near all-time highs.
For his part, Merrill Lynch’s Sieg said his investment break down was currently “80-plus” percent in stocks.
To be sure, portfolio construction is more of a rule of thumb than a standard that must be adhered to, experts say. Market strategists say that an individual’s investment objectives, age and risk tolerance must be considered when building up their own investments.
Check out the Quick and Sieg segment on CNBC below:
