60/40 is dead. What can you do now?

To investors, The 60/40 portfolio has been a staple of financial portfolios for decades. The inverse correlation between stocks and bonds were long thought to protect investors, regardless of the market environment. That promise has essentially evaporated into thin air and smart investors are rightfully abandoning the 60/40 portfolio in droves. As correlations between stocks and bonds have risen to significantly higher levels, bonds are now amplifying moves in equities rather than mitigating them. This means the 60/40 portfolio has the opposite effect than what was intended. On top of the lack of risk-mitigation, bond performance has been atrocious on its own. Take TLT (iShares 20+ Year Treasury Bond ETF) as an example. The fund is down almost 50% in the last 5 years. That is the nominal loss, which is only exasperated by the insane levels of inflation and loss of purchasing power in the last half-decade. So what have investors been doing to combat the problem? Private credit. Trillions of dollars have poured into various flavors of this opaque asset class in search of higher yields. Some capital has come from individuals looking for a bond solution, while other capital has flowed due to increased banking regulations after the Global Financial Crisis. Regardless of the reason, private credit went from a niche industry to the mainstream, but recent pressures in private credit now have people questioning the accuracy of portfolio values, resilience to downturns, and the quality of underlying companies. I don’t have a strong opinion on the industry at large. My view is that some private credit portfolios are high quality and others are time bombs waiting to explode. If you are allocated to funds in the vertical, you should quickly figure out which bucket you are in. Unfortunately, most individual investors are boxed out from participating in these funds. They don’t know where to get access, nor may they qualify for high minimums or other filters. So the question becomes what should they do if they are facing the same bond problem I discussed earlier? This is where I think on-chain yield generation will become an interesting option for investors over the coming years. The argument crypto folks would make is that yield generated through transparent, auditable mechanisms like staking, DeFi-based lending, liquidity provisioning, and funding-rate arbitrage will be superior to government bonds or private credit’s current form. It is hard to disagree with their perspective. What investor doesn’t want their position marked in real-time, along with a transparent view on how and when the yield is being generated? I am not an expert in on-chain finance, but my understanding is that most of this promised yield is delta-neutral and designed to harvest funding rates, lending spreads, and trading fees rather than to bet on the direction of individual assets. One group that I think intimately understands this shift in yield investing is Abra, which is run by Bill Barhydt. They have created USDAF , a dollar-yield strategy that seeks to generate yield through delta-neutral on-chain strategies. You can learn more about USDAF and their other products by clicking here . I see more people talking about the death of the 60/40 portfolio, but I haven’t heard a lot of talk about what the solution is. I don’t see a world where people give up on yield. Instead, I think investors will seek superior ways to generate yield, including more transparency, more accurate marks, and more robust resilience to the whims of our government. Hope everyone has a great day. I will talk to you on Monday. - Anthony J. Pompliano Founder & CEO, ProCap Financial (Nasdaq: BRR) Bitcoin Debate: Pomp DESTROYS Peter Schiff Peter Schiff is the host of The Peter Schiff Show podcast and a longtime economist and gold advocate. 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