As Cash Flows Into Money Market Funds...

Bank of America declares "the end of the 60-40" standard portfolio (Market Watch article).

Apparently, "in a research note published by Bank of America Securities, titled The End of 60 - 40, portfolio strategists Derek Harris and Jared Woodard argue that "there are good reasons to reconsider the role of bonds in your portfolio" and to allocate a greater share toward equities."

"The relationship between asset classes has changed so much that many investors buy equities not for future growth but for current income, and buy bonds to participate in price rallies" according to Harris and Woodard.

Not only is money flowing into money market funds but also into bond funds while investors exit the volatile equity market.

Apparently, with 1100 global stocks paying dividends with better yields than global government bonds (where there are billions of dollars of negatively yielding bonds), there is an argument for a larger weighting of equities in a balanced portfolio.

I would argue that adding the double edged risk of equities:

1) dividends are not guaranteed

2) equity prices can be very volatile

Is only going to add potential risk to a portfolio, especially if, as I / we (at High Rock) have been suggesting, that we are at or near the end of the economic expansion cycle (in the cash into money market fund graph above, growth in money market funds grows around the time of recession) that began in 2009. Note (below) what happens to dividend growth in times of economic slowing / recessions:

To a degree, the Bank of America folks are not entirely wrong, but what portfolios need more of are non-correlated assets as opposed to the traditional 60-40 mix. Assets that are not necessarily going to be as volatile as global equities or global government and investment grade corporate bonds, as we have seen lately, that drives investors to put more money into cash equivalent (money market) assets. 

Clearly, this circles back to my blog from last week: Alternatives To Volatile Stocks. 

For almost 5 years, High Rock has been working with clients to find them assets with more income generation that helps to reduce risk in a portfolio. If you can add legally obligated income streams (from Canadian High Yield bonds), it takes out the risk of the potential for reduced dividend payments from stocks.

We manage risk first.