The 60/40 Portfolio Is Out. The 50/30/20 Portfolio Plus AI Investing Is In.

For decades, the 60/40 portfolio—60% stocks and 40% bonds—was considered the gold standard for balanced investing. It aimed to combine the long-term growth potential of equities with the general stability of bonds. But according to José Minaya, global head of investments and wealth at BNY, that approach may no longer fit today’s complex markets.

“The old diversification is … 60/40 stocks, bonds … [but] the markets are a lot more complex and sophisticated,” Minaya said on Bloomberg’s Masters in Business podcast.

Today’s markets are shaped by higher inflation and greater market volatility than what prevailed when the 60/40 rule became popular, Minaya said. The solution, he said, is a more flexible 50/30/20 split across equities, bonds, and alternative assets, arguing that greater diversification is now essential.

In today’s market, alternative investments and AI must be considered when building a well-balanced portfolio, Minaya said.

Why the 60/40 Portfolio May No Longer Be Enough

The 60/40 model historically relied on a low correlation between stocks and bonds—when one fell, the other often rose. However, in 2022, a well-diversified portfolio of 60% stocks and 40% bonds declined about 16%. The rise of inflation, tighter monetary policy, and geopolitical stress have changed how markets move, which means investors need exposure beyond traditional assets to navigate this new environment, Minaya said.

With diversification, there’s more complexity to helping clients build their portfolios: “There’s more sophistication in terms of how you package, you know, solutions,” Minaya said. “More sophistication now on the need to get alternatives … to clients.”

Inside the 50/30/20 Model

With a 50/30/20 investment strategy, an investor divides their portfolio across three broad asset categories:

• 50% equities (stocks, whether individually or in funds) for growth potential
• 30% bonds (fixed income securities, singly or in funds) for income and stability through interest payments
• 20% alternatives (individually or in funds) to provide diversification and non-correlated returns (this can include commodities, hedge funds, private equity, and real estate)

This structure seeks to preserve upside from equity markets while adding buffers and new sources of return through bonds and alternative strategies.

Potential Benefits and Trade-Offs

Adding alternatives isn’t without challenges. Many of these assets, such as real estate and commodities, are illiquid, come with higher fees, and require longer holding periods to see a return.

For everyday investors, access to alternatives has been expanded through interval funds (or closed-end funds), but these also carry a level of illiquidity and often involve fees, among other potential drawbacks.

On the other hand, alternative investments can help investors weather recessions and market shocks.

How AI Is Changing the Future of Portfolio Management

Minaya said he sees artificial intelligence (AI) as a powerful ally in the next era of investing. He thinks it can help investors make decisions. He also thinks investors can find AI-oriented businesses that are worth investing in. He said AI has a transformative potential since it can “go through a lot more information … and disseminate that information.”

Undoubtedly, AI is changing the future of portfolio management and the way the world works. That being said, Minaya also explained that a mix of humans with AI is better than just AI alone: “Human beings with AI will be better than human beings without AI, … You’re still gonna need the component … [of] human beings … in the mix.”

The Bottom Line

Minaya’s message is clear: investors can no longer rely on old formulas. The 60/40 portfolio may have worked for decades, but today’s world demands greater diversification and smarter tools.

A 50/30/20 framework—supported by advances in AI—reflects a shift toward portfolios built for complexity, not simplicity. In a market fogged in by uncertainty, patience and innovation could be the new pillars of successful investing.