Are You Still Using This Popular Portfolio Strategy?

Amanda Heckman|July 2, 2022

We’re starting the second half of the year with a bang…

Andy’s prediction of a recession has come true. The Federal Reserve’s GDP tracker has officially turned negative… and then some.

Simply put, our country is in for more economic pain… and a prolonged bear market.

Investors who’ve been clinging to old – yet still popular – investing models need to let go. Now. Those strategies don’t work anymore.

The proof is plain to see…

Failing Miserably

The 60/40 portfolio, the default strategy for many investors, has had an awful year. It’s down some 17% – its worst performance to start a year except for two Depression-era downturns, in 1931 and 1937.

The so-called “safe” mix of 60% stocks and 40% bonds has been knocked out by the one-two punch of a down market and high inflation.

The strategy was created way back in the 1950s and is intended to provide growth through stocks while keeping volatility at bay with bonds.

This year, it’s failed miserably.

The idea behind the model is that stocks and bonds are supposed to be inversely correlated… so when the stock market heads south, bonds are there to pick up the slack.

The market is so far south it’s swimming in the Caribbean.

But there’s a big problem…

Now that the Federal Reserve has brought rates out of the gutter, bond yields are rising. And since bond prices fall as yields rise, bondholders are seeing the value of the bonds in their portfolios drop.

Whoops.

Add to that today’s steep inflation. Historically, the 60/40 portfolio has produced average annual returns of around 6%. At last check, inflation is above 8%.

Do the math. Investors are losing money with this “safe” strategy.

It’s past time to put the 60/40 mix to bed.

It’s critical to change your strategy. You can’t rely on textbook models that can’t keep up with today’s market.

That’s precisely why we created our Modern Asset Portfolio – or MAP – the heart of our award-winning Manward Letter.

An Investment MAP

Our MAP strategy uses interest rates to guide our investments.

When interest rates were negative (we use the 10-year real interest rate, which accounts for inflation), we seized speculative opportunities in crypto and fast-growing tech stocks.

As Andy explained to our Manward Letter subscribers…

When rates are in the red, as they were over the last 30 months, valuations don’t matter all that much. Speculative assets surge in price simply because they’re speculative. With so much free money floating around, there’s no alternative.

But now rates are (barely) positive. So we made changes to our strategy. (Manward Letter readers got all the details in their June issue.)

But that’s not all. As Andy showed you this week… it’s key that you look into the special situations that have come out of this mess to find profits.

He pointed to deflation stocks… the companies that have forced prices lower and lower “by operating on a grand scale, with an efficiency that wrings the waste out of every process.”

These companies will bring inflation down better than any Fed policy ever could.

Both Andy and Alpesh also see opportunities in the energy sector. Andy showed us this week how Russia’s war on Ukraine and Europe’s missteps in moving toward cleaner energy have created a perfect storm. It’s why he’s looking at natural gas… and specifically midstream companies that move gas from point A to point B.

They’re an ideal play right now, Andy says, as the world scrambles “to get gas to all the right places.”

In the coming weeks, we’ll continue to show you ways to survive – and profit from – this mess.

The markets just had their worst first half of a year since the ’70s. Inflation is costing folks money and portfolio returns.

And now our recession prediction has come true.

It’s past time to use strategies that will work in today’s market.