How to update your 60/40 with a 'total portfolio approach' to navigate volatility

Investors may want to rethink how they are structuring their 60/40 portfolios. The role of a traditional allocation of 60% stocks and 40% bonds has been the subject of debate in recent years, particularly after its dismal performance in 2022 when stocks and bonds saw their prices decline in tandem. While some still call the 60/40 a good place to start, others advocate for adding in more portfolio diversifiers . The "total portfolio approach," or TPA, doesn't abandon the framework of the 60/40, but instead buckets the assets by risk, explained Jason Kephart, senior principal of multi-asset manager research for Morningstar. It's an approach that was adopted by the California Public Employees' Retirement System in November, when it became the first United States pension fund to do so. The idea is that investors know exactly what they expect from their assets, Kephart said. "Start thinking about really what the goal of using the exact asset classes in a portfolio is — is something there to help you grow your assets, something there to help you protect your assets, something there for inflation protection?" he said. "It's the same tools you'd use to build a portfolio, but just coming at it from a different lens." While "total portfolio approach" portfolios built by large institutional asset owners can be complex, investors can take a simplified approach by separating investments into two sleeves: growth and stability, Kephart said. …