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At least once a year, regardless of market conditions, some investment bank or another announces that it is “redefining” investing. I remember attending a presentation way back in 2019 at which a senior banker argued that, after nearly a decade of low bond yields, the standard 60/40 portfolio (60% stocks, 40% bonds) needed to be rethought. After a long song and dance, his “redefinition” amounted to putting some riskier assets in the bond portfolio to goose returns.
Now the US is in a higher-interest-rate environment, and once again there is a lot of redefining going on. One change is that it’s finally good to be a saver again. The catch is that saving isn’t quite as safe as it used to be.
Don’t get me wrong — if you were in the stock market the last 30 years, that was pretty great too, except for the financial crisis and the pandemic, and a few corrections here and there. But you could get great returns if you took on that risk. A safe portfolio, meanwhile, paid nothing — near zero interest on a bank account, money market funds, even Treasuries. It was less than nothing after you accounted for inflation. In that environment, savers had no choice: Either take on risk or lose money.
Continue reading the entire piece here at Bloomberg (Paywall)
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Allison Schrager is a senior fellow at the Manhattan Institute, a contributing editor of City Journal, and a Bloomberg Opinion columnist.