The Resurgence of a Balanced Portfolio: A 2023 Perspective
A well-rounded portfolio designed for peace of mind rather than ostentation is witnessing remarkable success this year. The balanced strategy of allocating assets equally across stocks, bonds, cash, and commodities—known as the 25/25/25/25 model—has achieved a staggering 26% gain, positioning it for its strongest annual performance since 1933, as noted in a report by Bank of America’s Michael Hartnett.
A portfolio tracking stocks, bonds, cash, and commodities is having its best year since 1933: BofA
This impressive outcome underscores the potential of diversified investing, which avoids the pitfalls of chasing fleeting market trends. Instead of concentrating on high-risk trades, this portfolio method emphasizes growth, defensive assets, liquidity, and tangible commodities—all of which have performed exceptionally well in the current market climate.
The significance of this approach extends beyond immediate results; it offers insights into asset allocation strategies for 2026 and beyond. The BofA framework is also reporting its third-best outperformance relative to the conventional 60/40 stock-bond portfolio in a century, indicating a renewed market recognition favouring wider diversification.
Commodities have played a pivotal role in this year’s success. While stocks, bonds, and cash have contributed positively, it has been the robust performance of commodities that has truly differentiated this portfolio from the traditional mix. Michael Hartnett previously referred to this 25/25/25/25 strategy in his January 29 Flow Show report, highlighting it as a “sleep like a baby” portfolio and suggesting that the current decade will favour such a diversified approach over the traditional 60/40 allocation.
Interestingly, many investors still appear underinvested in commodities, the very asset class driving this portfolio’s strong performance. Should the robust returns continue to attract more investors towards commodities and other tangible assets, this “boring” portfolio may have even greater growth potential.
The concept of this diversified portfolio resonates with Harry Browne’s "Permanent Portfolio" strategy, which allocates equal weights to stocks, long-term US Treasury bonds, cash, and gold. However, BofA’s modern iteration incorporates a broader commodities component, enhancing its relevance in today’s financial landscape.
For those seeking to replicate this balanced approach, several large, liquid exchange-traded funds (ETFs) can serve as proxies for the various asset classes. Below are examples of ETFs that align closely with the four underlying components:
| Asset Class | ETF Examples | Description |
|---|---|---|
| Stocks | VOO, IVV, SPY | Broad US stock exposure |
| Bonds | IEF, GOVT, TLT | Long-term Treasury/bond exposure |
| Cash | SGOV, BIL, SHV | Short-term Treasury/cash-like exposure |
| Commodities | PDBC, BCI, DBC | Broad commodities exposure |
Conclusion
This balanced asset allocation strategy has not only brought significant gains in 2023 but is also paving the way for future investment approaches. Investors are encouraged to consider the diversification benefits inherent in a well-constructed portfolio, which is proving effective in the current market environment. As the landscape continues to evolve, staying adaptable and open to new combinations will likely be key to future success in investment strategies.
Written by Jared Blikre, Global Markets and Data Editor for Yahoo Finance. Follow him on X at @SPYJared or contact him at jaredblikre@yahooinc.com.
