In his recent interview with CNBC’s “Squawk on the Street”, Jeffrey Gundlach recommends investors move to a radical 25/25/25/25 portfolio. Here’s an excerpt from the interview:
Gundlach: I’ve been advising against 60/40 portfolios pretty consistently the past two years. Basically I think we’re in a world where the risks of inflation and deflation are both real.
Right now we’re experiencing the inflationary side obviously and so what’s happening is the Fed is behind the curve and the bond market was grossly mispriced thanks to the government’s manipulation, and so everything’s being repriced.
Now what I’ve been advising over the past two years instead of 60/40 is actually something more radical which is a very broadly diversified portfolio. I’ve been advising 25% commodities, 25% cash, 25% stocks, and 25% long-term treasury bonds, believe it or not, because they’re so ridiculously valued, but that’s your deflation hedge.
So if you actually have a 60/40 portfolio, 2022 is your worst year to date ever for 60/40, but if you had the 25/25/25 you’d be far better off because commodities are actually up about 25% year to date so that will more than compensate for your stock losses and your bond losses, and of course cash is just… it’s just dry powder. So that’s what I think people should do.
In bonds you actually should have some long-term treasury bonds for a deflationary hedge, other than that you should be bar bell, two-year treasuries, other securities in the credit market that are around that same short average life because after all with this 8.6/8.5 inflation rate and a two and a half percent two-year treasury rate you know and a 2.8 percent long bond, I mean there’s not a great reason to own, other than the deflation hedge, the belly of the curve as we call it. So you should stay in the shorter maturities.
You can watch the entire discussion here:
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