American investors are rewriting what it means to invest successfully in today's market environment; two-thirds say they look beyond stocks and bonds to alternative assets to diversify and tailor their portfolios, according to Charles Schwab (NASDAQ:SCHW).
That's a significant shift away from the foundational approach of counting on stocks and bonds to build an investment portfolio. The survey found that stocks, mutual funds and bonds remain core holdings, but 42% of American investors view the classic 60/40 portfolio (60% stocks and 40% bonds) often pushed by financial advisors as outdated.
"It's never been a better time to be a retail investor," Jonathan Craig, head of retail investing at Charles Schwab, said in a statement.
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What the Numbers Reveal
The survey, released in October, provides insight into just how much investing and the market environment are changing. Fifty-two percent of investors surveyed said investing now involves more short-term risk-taking than in the past, with trading consuming a larger part of their investing. After starting investing, 43% of investors increased their trading because:
- They have better platforms and tools (51%)
- They want to take advantage of market opportunities (51%)
- They have more experience and confidence (48%)
Meanwhile, about 6 out of 10 investors said the evolving market environment requires more of a long-term approach than before, and 68% said they are more patient investors than when they started.
These numbers include millennial and Gen Z investors, who are often viewed as seeking quick wins. The survey found that 62% of Gen Z investors and 72% of millennials have grown more patient as investors.
"Even in a world that can feel driven by instant gratification, it's encouraging to see so many investors recognize the importance of taking a long-term perspective and steadily building wealth," Craig said.
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An Evolving Market Environment for a Changing World
The classic 60/40 portfolio isn't dead, but analysts seem to be compiling an ever-growing list of why investors should view it through the rearview mirror.
Investors are moving away from the 60/40 model because of low bond yields, high market volatility, a shift in the correlation between stocks and bonds, interest-rate pressures, and longevity.
Fundviews Capital Managing Partner Gregory Poapst blogged on fund administrator Essential Fund Services International's site about alternative investments being at the center of modern portfolios. He said that alternative assets offer a return stream less correlated to public markets. They also present opportunities to capture illiquidity and complexity premiums, as well as specialized strategies that can deliver strong risk-adjusted outcomes.
Alternatives "can be a core driver of portfolio resilience," Poapst wrote. "Whether through private equity, private credit, infrastructure, real estate or niche funds, these exposures can smooth volatility, unlock differentiated returns and align portfolios with structural trends."
In the Schwab statement, Craig said, "With greater access to high-quality platforms and tools, comprehensive educational resources, a wider range of products than ever before, and 24/7 professional support, investors can diversify and personalize their portfolios to match their goals."
Ric Edelman, the former head of Edelman Financial Engines, told CNBC in May that the classic 60/40 approach to investing can no longer support how long humans live now.
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Is it Time to Seek Advice to Rethink Your Investment Approach?
Nearly 75% of wealthy investors under 43 don't believe a traditional stock and bond portfolio can deliver above-average returns, and 93% plan to allocate more of their portfolio to alternatives, according to the 2024 Bank of America Private Bank Study of Wealthy Americans.
The Schwab survey may not be a clarion call to reinvest your portfolio overnight. However, it may stir you to wonder if your portfolio is built for today's environment or yesterday's and to seek relevant advice.
"With more choices and strategies than ever — from crypto to alternatives to more frequent trading — advice can help investors navigate the range of possibilities, make informed decisions and shape portfolios that reflect their goals and appetite for risk," Rob Williams, the head of wealth management research at the Schwab Center for Financial Research, said in Schwab's statement.
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