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A 60/40 Portfolio Is No Longer Sufficient

Michael Jamison, Portfolio Manager

December 13, 2021

For decades, the classic 60/40 rule was used by investment professionals to help manage retirement portfolios. The rule – which recommends that 60% of a portfolio should be invested in stocks and 40% in bonds or other “conservative” asset classes – was designed to help offset volatility while maintaining a consistent level of growth and income. However, the climate of rising stock prices and low interest rates over the past few years has led many investment experts to abandon the rule. David Kelly, chief global strategist for J.P. Morgan Asset Management, says a “plain vanilla portfolio of 60% global equities and 40% U.S. bonds is likely to net a meager annual return of just 4.2% over the next 10 to 15 years.” Per Figure 1 (below), since 1977 the spread between S&P 500 Yields and U.S. 30 Year Bond Yields has closed significantly in favor of U.S. equities. Buy-and-hold investors that are looking for new ways to generate income from their portfolio while maintaining long-term capital appreciation are turning to Covered Call strategies as a viable solution. A Covered Call strategy can offer greater income with less volatile returns than can be found in the equity markets alone.

At Griffin Asset Management, we have two options writing strategies that serve as a compelling alternative to a 60/40 portfolio. Our Covered Call Strategy and our Enhanced Equity Income strategy both help investors generate additional yield on their portfolio while taking moderate risk.

  • The Covered Call Strategy invests for long-term total return with increased income and reduced volatility. The strategy seeks to invest in large cap, dividend paying stocks while writing calls against 50%-100% of the shares in the portfolio in most market environments.

  • The Enhanced Equity Income Strategy utilizes covered call option writing to maximize the dividend income stream on a high-quality equity portfolio in a risk averse manner. The portfolio manager uses in depth research to identify undervalued businesses with solid balance sheets and superior management teams.

For more information regarding Covered Call strategies, please consult with your Financial Advisor.

All material of opinion reflects the judgement of Adviser at this time and are subject to change. This material is not intended as an offer or solicitation to buy, hold or sell any financial instrument or investment advisory services.

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