Investors could benefit from revamping their 60/40 portfolios as a tough market takes hold, top Goldman strategist says

• The classic 60/40 portfolio may disappoint in a tough market, a Goldman strategist has warned.
• Stocks and bonds are facing a raft of headwinds, Christian Mueller-Glissmann said.

Fans of the classic 60/40 portfolio should consider switching up their asset mix as the outlook for stocks and bonds has dimmed, a Goldman Sachs strategist has warned.

"The market needs to prepare for a period where those portfolios are unlikely to do as well in risk-adjusted terms," Christian Mueller-Glissmann, Goldman's head of asset allocation research within portfolio strategy, said during a recent episode of the "Goldman Sachs Exchanges" podcast.

The market backdrop over the last 20 years was "phenomenal" for a portfolio split 60-40 between stocks and bonds, but the next decade may not be as rosy, he cautioned. Elevated inflation, recession fears, and the prospect of weaker consumer spending and lower corporate profits threaten to weigh on conventional portfolios, he added.

Mueller-Glissmann highlighted several assets that might be worth parking some money in.

"Gold has become a quite useful safe haven, and has helped portfolios not just diversify risk off, but also diversify dollar exposure," he said, noting the yellow metal's price is negatively correlated with the US dollar.

The Goldman portfolio expert also touted private investments as a smart bet, noting they can provide access to assets and investment strategies that can't be found in public markets. He offered several examples including infrastructure, early-stage AI ventures, and private credit which could benefit from tighter lending by regional banks.

Mueller-Glissmann also suggested investors might want to bet on higher-quality equities and credit, which may fare better if businesses run into trouble and borrowers default on their debts. Moreover, he highlighted options — derivatives that are often used to bet on the future price of an asset — as useful tools in hedging against downturns too.

The elite researcher also recommended keeping a close eye on factors that could alter the US macroeconomic outlook, including employment data, the current clash over the debt ceiling, and a potential manufacturing recovery.

Numerous experts have underscored how risky and uncertain the current market environment is for investors. Stocks and other assets have rallied strongly this year despite stubborn inflation, the Federal Reserve hiking interest rates three times, a possible US debt default, multiple banks imploding and being rescued, and a prospective credit crunch as lenders pull back in anticipation of further bank runs.

Mueller-Glissmann's view appears to be that given all the question marks around asset prices and the economy, it makes sense for investors to spread their bets more widely and take some risk off the table.