In science and philosophy, "Occam's Razor" is a tenet that says the simplest answer to a question is usually the best answer.
Perhaps the long-used 60-40 retirement portfolio should be called "Occam's Allocation."
In a panel discussion on Thursday at the 2017 Inside Retirement Conference in Dallas, Dan Moisand, partner in Moisand, Fitzgerald and Tamayo, said that advisors were best served offering simple, low-cost strategies like a 60-40 investment allocation to their clients.
“We rebalance periodically, we keep costs low and there’s nothing exciting in what happens in the investment portfolios of our clients,” said Moisand. “I’m comfortable with keeping it that way for the future. … For 26 years I’ve been told that I’m an idiot, but we keep making money, and our clients keep achieving their goals.”
Most of the panel’s participants agreed that simple strategies using low-cost investments were most likely to lead to successful portfolios.
But Russell Hill, chairman and CEO of Halbert Hargrove Global Advisors, said that might not be enough to retain clients moving forward. J.P, Morgan has predicted that a portfolio allocated 60 percent to equities and 40 percent to bonds will gross 3.1 percent annually over inflation, said Hill.
“What is not different are basic investing principles. The difference is the conditions in which we’re offering them,” said Hill.
Advisors can juice a portfolio’s return by allocating to different risk premiums and using additional asset classes, said Hill, who suggested that more advisors consider options like private equity, alternative lending, catastrophe bonds and direct real estate market insurance.
By doing so, Hill estimated that an advisor could add as much as 3.4 percent in annual returns to their clients’ portfolios while maintaining a balance between equities and fixed income.
Peter Lazaroff, portfolio manager at Plancorp, said that a 60-40 allocation, if diversified, can still get most people to and through their retirement, but that investors are poorly served by generic rules of thumb.