This old-school way of investing money is better than ever - even in the age of AI and mega-IPOs

By Matt Fleissig

The 'golden ratio' for portfolio construction - 60% stocks, 40% bonds - works again, but with a few tweaks

The "golden ratio" for portfolio construction is working again - after a few tweaks.

The "golden ratio" of investing is back, even if it's for different reasons than when it was developed.

The 60% stocks, 40% bonds portfolio has been declared dead more times than I can count. The reason was always the same - and it started with the 60%. For the better part of 15 years, the equity side of the portfolio came down to one trade: own the S&P 500 SPX and try not to get too clever about the rest.

Anything added on top of that looked like a drag on returns. International stocks lagged. Emerging markets disappointed. Bonds, during most of that stretch, delivered returns similar to a bank deposit. Every diversified portfolio looked like a mistake next to the index.

But thanks to a few makeovers, the 60/40 is back - and better than ever.

The S&P 500 was built to represent a broad basket of the market. That's no longer true: A limited number of companies now drive most of its returns as they fuel the buildout of artificial intelligence, and an even smaller handful "chip" in the rest - pun intended.

Meanwhile, the number of publicly listed U.S. companies has fallen by roughly half since the mid-1990s, from close to 8,000 to under 5,000 today.

The companies that used to define an index, going public early in their growth, now opt to wait. Instead, they stay private - with many going public well after they've already achieved hockey-stick growth, leaving public investors chasing a ship that has already left the port.

This summer's SpaceX (SPCX) initial public offering was the cleanest illustration of this shift. The company went public in June at a valuation north of $2 trillion, after spending more than two decades in private hands. That is not an anomaly. It's an established pattern.

The median age of a U.S. technology company at IPO has roughly doubled since 2000, from about six years to 12. Companies that once needed public markets to fund their next stage of growth now have no shortage of private capital willing to fund growth, and no shortage of reasons to avoid the quarterly scrutiny that comes with public ownership.

Compare that to when Amazon.com (AMZN) and Nvidia (NVDA) went public in the late 1990s, when both were valued at under $1 billion. Virtually all the wealth those companies eventually created was captured by public shareholders, because there was nowhere else for that value to accrue.

Uber Technologies (UBER), Snowflake (SNOW), Airbnb (ABNB) and DoorDash (DASH) tell a different story. Each arrived on the public market already valued in the tens of billions of dollars. The value they created in their private years now belongs to the venture and growth investors, who backed them before the rest of us could.

These emerging companies have to be included in the new 60%. Not that public equities have stopped working; it's just that an increasing share of value creation now happens prior to the IPO - and somewhere public investors cannot reach.

A portfolio that only owns the S&P 500 is not a conservative choice anymore - it's late. Rest assured, the next generation of Amazons will go public after they get interesting.

I'll give the skeptics their due, because private-equity data don't paint a pretty picture. Over the past five and 10 years, the average buyout fund has trailed the S&P 500 on a like-for-like basis, using the public-market-equivalent method that strips out the advantage of comparing illiquid returns to a liquid index. It is only over 15- and 20-year periods that the average private-equity fund pulls ahead.

The exception, and it is a large one, is manager selection. Top-quartile buyout managers have outperformed the public-market equivalent in every single period, by a wide margin. In public markets, picking a good manager is a nice-to-have. In private markets, it may be the entire point.

The other half - two-fifths to be exact - of the story is the bond market. The case for real ballast is stronger than it has been in 20 years.

High-quality bonds carry a correlation to the S&P 500 of roughly 0.24 - by far the lowest of any major asset class - compared with roughly 0.66 for both developed and emerging international equities. This is the job bonds are supposed to do: zig when equities zag.

For most of the past decade, they could not do this job and pay you at the same time, because yields were near zero. But today's 40% offers real income, alongside real shock absorption to shaky equity markets. The yield on the highest-quality, benchmark 10-year Treasury note BX:TMUBMUSD10Y is above 4.5%.

Diversification almost always feels foolish right before it becomes brilliant. Many investors abandon it exactly when they need it most: at the top of a cycle, when the thing they already own is working and everything else looks like a distraction. That is not a market-timing problem, it is a behavioral one. And it is exactly why 60/40 obituaries kept getting written when U.S. large-capitalization stocks could do no wrong.

The 60/40 isn't back because stocks are exciting again. It's back because the portfolio finally caught up to where the value is: across public markets, private equity, venture capital and real assets, anchored by a fixed-income allocation that pays you to wait.

This new combination is why the portfolio version of the golden ratio was developed in the first place.

Matt Fleissig is the co-founder and CEO of Pathstone, a national wealth-management firm serving ultrahigh-net-worth families.

Disclosure: This article is for informational purposes only and does not constitute investment advice, a recommendation, or an offer or solicitation to buy or sell any security. The views expressed are those of the author as of the date of publication and are subject to change without notice. Pathstone and its affiliates may have positions in or provide advisory services related to securities or strategies discussed herein. Past performance is not indicative of future results. For more information, please visit adviserinfo.sec.gov.

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08-15-26 0730ET