1952: Portfolio Theory
Harry Markowitz devises the modern portfolio theory, a mixture of stocks and bonds.
1980s: 60/40 Grows
Baby boomers popularize the 60/40 portfolio as 1970s stagflation wanes and low-inflation growth emerges.
1981: ALTS FOR ELITES
A second way to add portfolio diversification enters the marketplace: alternative investments. High net worth investors and university endowments access these new diversifiers through limited partnerships.
1995: Costs Rise
Funds of funds make alternatives more accessible and more expensive. The usual 1% management fee climbs to 2%, not including the standard 20% performance fee.
2007: Housing Bust
U.S. Treasuries still provide worthwhile diversification during the housing market crash and the start of the credit crisis.
2010: Yields Bust
The Federal Reserve becomes the largest holder of U.S. Treasuries, part of a wave of countries buying their own debt and making yields less attractive for investors.
2016: Negative yields
Billions of bonds in Japan and the United Kingdom go into negative yield territory, which leaves bond investors reaching for yield in other asset classes.
Present: Alts for All
There are more liquid alternative strategies available than ever. These span long-short equity, market neutral, managed futures and other investments that work to provide the next wave of diversification. More diversity and quality is available than in prior years.
The trend of countries buying their own debt continues to make yields less attractive for investors. Between local and federal government efforts, the U.S. owns 67.5% of its own Treasuries.
Research shows that a more balanced blend of stocks, bonds and alternative investments can help investors achieve portfolio diversification.