Rethinking the 60/40 Allocation Model with the Siegel-WisdomTree Model Portfolios

I'd like to welcome you to the studio here just outside of Washington, D.C. What I want to talk to you about today are the Siegel-WisdomTree Longevity Models. Working in very close collaboration with Dr. Jeremy Siegel of Wharton, we put together some portfolios that capture three long-term investment trends. 

The first, of course, if you know Dr. Siegel, you know that it's stocks for the long run, which is that over longer periods of time, stocks have always empirically and anecdotally, academically outperformed with lower volatility. The second, drawing on the work of folks like Joseph Coughlin at M.I.T. Age Lab, is simply the fact that people are living longer, and that has implications on how you need to build and manage investment portfolios.  And then third, is that interest rates are going to stay lower for longer, and that was our opinion even before the pandemic hit. That lower interest rate environment has some pretty profound implications on people who are trying to generate current income out of their investment portfolio.

So, if you take that prototypical 60/40 investor, that moderate investor, and try to generate sufficient income to maintain a lifestyle out of that 40 percent income allocation, it's going to be very difficult in today's rate environment. You could take credit risk or duration risk. But then that begins to defeat the purpose of having the bonds in your portfolio to begin with.

So, what we've done instead is we've built the Siegel-WisdomTree Longevity Model, which is a 75/25 allocations. 75 percent to equities, 25 percent to income. The equities are all dedicated to dividend in yield, so we generate higher current income out of that versus bonds because of that income component. The equities tend to be a little lower back, a little more defensive, and so what you end up with is a portfolio that has a standard deviation that looks very close to that 60/40 traditional portfolio, but it seeks to generate higher current income because of the higher yield coming out of the equity piece.We're focusing on income inequality in the income piece, and then because it has a 75 percent allocation to equities, it has a much better longevity profile and so fits the needs of investors who are living longer than they used to.

So, we think it's a great idea. We think it solves a lot of problems, and we hope you give it a look. Thank you. 

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