Rethinking the 60/40 Approach

February 3, 2020
Our Siegel-WisdomTree Model Portfolios were designed to challenge the traditional 60/40 portfolio approach that may no longer be optimal for long-term investors.

Bob Pisani: I want to move on and talk about the fast-moving ETF business in general now. Last Thursday, WisdomTree launched two new portfolios, Model Portfolios designed to challenge that traditional 60/40 stock bond approach. This is the Siegel-WisdomTree Global Equity Model Portfolio. It's a mouthful, and the Siegel-WisdomTree Longevity Model Portfolio developed in collaboration with our star here, Professor Jeremy Siegel of the Wharton School of Finance. Jeremy Siegel, you're trying to address two persistent issues: lower interest rates and little lower U.S. equity returns. And you say the traditional 60/40 stock bond portfolio isn't going to cut it. Can you explain why? What's behind this?

Jeremy Siegel: Well, that's certainly true, Bob. With yields at the levels they are and, in my belief, and I've been saying this, as you know on CNBC a long time, this environment of low interest rates is not going to change. How is 1.5 percent, which is what the 10 year is right now, going to give you enough income? The dividend yield is higher on the S&P 500. Our dividend weighted products are much higher: 2.5, 3, and some are even more. And they give a higher return. We believe that the old 60/40 model just won't be able to cut it anymore. And that's why we recommend 75/25 as the equity fixed income allocation would be the best way for those approaching retirement to establish their assets to get enough income and gain so they can maintain spending through retirement.

Bob Pisani: And you believe, this is a very important part of the story I think, lower interest rates are here to stay. They're not some phenomenon. The last few years that this is going to be, I'm asking, this is going to be around for a long time, if that's the case. Stocks are definitely, in many cases, a lot more attractive.

Jeremy Siegel: Yeah, absolutely. It's not one thing, assuming it is not just the central banks that are setting interest rates down. It is powerful demographic factors. He can get a population longer, life expectancy, risk aversion, slower growth. All these factors are going to keep these interest rates in these levels for very long, and you cannot survive on a 1.5 percent nominal interest rate. Look at the tips yield. The real interest rates are negative now, so it cannot maintain spending streams at all. Dividends on stocks are going to be the new bond in terms of thinking about retirement.

Bob Pisani: And Jeff and Jeremy, we've talked about this in the past. I get e-mails from the viewers. Essentially what Professor Siegel was saying, it's the Tina story. There is no alternative. What do you want from me, Bob? I'm going to buy 1.6 percent, 10-year Treasury yields. The S&P is yielding 2 percent. It does make some sense if Professor Siegel is right. Interest rates lower for longer. Stocks are more attractive.

Jeff Kilburg: It does, and kudos to Professor Siegel and WisdomTree for coming out with this. But this really challenges Harry Markowitz. Remember Harry Markowitz back in 1952? He created the Modern Portfolio Theory. So, I think we do have to shake it up due to the interest rate environment, Bob. And right now, this search for yield, I don't think it goes anyway. Last year alone of the 67 global central bankers, 50 of them. So, I think when you continue to see this accommodative easy mode, you have to find additional yield somewhere else.

Bob Pisani: Can you tell us a little bit more, Jeremy Schwartz? What's in these model portfolios? Presumably you're going to turn them into ETFs, is that right? I mean, where is it going?

Jeremy Schwartz: I mean, right now we're making these models available on the major model platforms we announced from the TD Ameritrade conference last week. You know, the TD Model Market Center is one of the big platforms for all these model portfolios are available. And the idea is really mirroring Siegel's two big books. So, Stocks for the Long Run was all about stocks having short term volatility, but actually left long term volatility compared to bonds. And that's upping your equity allocation. The second book that I helped him on a lot was The Future for Investors, which married high dividend is low P/E investing, what we called the DIB directives. And that's what's in these models. There's an emphasis on high-dividend stocks, low P/E valuation stocks, multi-factor diversification because you’re taking an equity risk. You need to lower the risk within the portfolios. And there is also a heavy emphasis on being global and international, having a decent amount of emerging markets.

Bob Pisani: How do we learn more about it? We can't buy an ETF, though? It doesn't exist yet, right?

Jeremy Schwartz: You've got to go to the website,, and there's an advisor portal where you can get the allocations to these models or for sure the advisors on the TD Model Market Center.

As of 1/31/2020, dividend yields for the WisdomTree Emerging Markets High Dividend Fund (DEM), WisdomTree Emerging Markets SmallCap Dividend Fund (DGS), WisdomTree U.S. Total Dividend Fund (DTD), the dividend weighted products referenced in the video were 5.19, 3.95, 2.78 respectively. For the most recent month end and standardized performance click here

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