Cookie Cutter Investing

We’re a team of fiduciaries here at Senior Financial Security, and what that means is that by law, we are required to put your needs ahead of our own. What we’re going to talk about today is whether it is time to 86 the 60/40, or essentially, should we move on from the 60/40 portfolio?

Let’s start by defining what a 60/40 portfolio is. These portfolios are 60% equities or stocks and 40% fixed income or bonds. The 60/40 portfolio was a very popular investment strategy starting in the eighties and it’s still being used today, believe it or not. This was never a customized portfolio. It’s always been cookie cutter and we see lazier advisors still using it today.

So why did it become so popular? Back in the eighties interest rates were really high. People were paying 14%-15%, and you could get a 12% CD. There were even money markets that were paying 5% and 6%. Fast forward to today. What are interest rates now? Basically zero. I personally am closing on a house and have just under 3% for my interest rate. CDs are paying a percent if you’re lucky, and money markets maybe a nickel. So interest rates really have been significantly decreasing.

Every time they lower interest rates, the price of your bonds go up. Meaning all those folks who are in a 60/40 portfolio, they had that 40% in bonds going up. So with interest rates basically at zero, when they start raising interest rates, those bonds will go down. Absolutely. It’s not a matter of if, it’s a matter of when. I heard Janet Yellen on the radio, she was talking about her new role as the Treasury Secretary and they asked her, “Are you concerned with all the spending that they’re doing, how that’s going to affect inflation?” Without even skipping a beat, she said no. She is not concerned because what the Fed can do is they can just raise interest rates to control inflation.

Again, that’s where any bonds that you have will decrease in value. You’re waiting to lose money. Therefore, it’s kind of frustrating when you have advisors just putting everyone in 60/40 portfolios still, without customizing it. Whenever we put together a portfolio, we want to make sure it’s custom. We need to know several things. What are your income needs? What are your goals? Do you have any charitable inclinations? What’s your risk tolerance?

Speaking of risk, we’ll talk to folks and they’ll say, “Oh, my advisor, they just asked me, am I conservative, am I moderate, or am I aggressive?” Well, if you say moderate, one person’s moderate is probably a lot different than another person’s moderate. You know what that’s like? That’s like you driving down a highway or driving down the turnpike and you see a speed limit sign, and it just says fast. What does that mean? You’re going to have people in the left lane going 90 miles an hour, people in the right lane going 40 miles an hour and they both think they’re right.

That’s why we do things a little differently when it comes to risk tolerance. We’ll give you, and if it’s a husband and a wife, we’ll give you each your own risk questionnaire. It’s just a few questions and at the end of it, you end up scoring on a scale between 1 and 100. So if someone comes out and they score, say a 35, then a 35 is a 35 is a 35. It’s a quantifiable number so that there’s little room for error. That way you can have a moderate 45 and a moderate 65, both being completely different.

If you make a complimentary consultation, not only will we show you how diverse your investments are, or possibly even not diverse, we’ll see how risky they are. We’ll put it on that same risk scale between 1 and 100 and see if it lines up. If it does, you’re doing great. And if not, we’ll see if we need to make any improvements. Again, as fiduciaries, we are required always show you that. We always must be transparent and put your needs ahead of our own.

This is why picking a financial advisor is one of the most important decisions you’ll ever make. You don’t treat it like you would when shopping for a car. These complex techniques are a unique wheelhouse for Jean Dorrell and her team of fiduciaries. Call our office at 352-307-8652, visit our website ( to book an appointment, or register for an upcoming seminar. One office. In The Villages. For 30 years. We know retirees and their needs, do you know us?

*Investment Advisory Services offered through Bucket List Wealth Management LLC, a Registered Investment Advisor.