For as long as most of us have been alive, the standard investment portfolio has consisted of 60% stocks and 40% bonds, with stocks providing growth while bonds protect against downturns.

This worked beautifully, with the typical portfolio generating a reliable 8%-10% annual return.

But it’s not working anymore. As the credit supercycle (which sent capital pouring into both stocks and bonds, thus enabling their solid returns) peaks, bonds have lost their safe-haven status. Put simply, neither stocks nor bonds protect against stagflation.

As a result, some Wall Street firms have started recommending commodities, especially gold, as counter-cyclical stabilizers. One example:

Why Morgan Stanley’s revised 60/20/20 portfolio is a wake-up call for investors

(CryptoSlate) – Morgan Stanley’s Chief Investment Officer, Mike Wilson, has upended conventional wisdom surrounding the classic 60/40 portfolio, advocating instead for a 60/20/20 mix. Gold now joins bonds as a direct allocation for investors seeking resilience in a time of inflation and market volatility.

A new framework from Morgan Stanley

Instead of relying solely on bonds to offset equity risk, Morgan Stanley recommends a 60/20/20 model that shifts 20% of the portfolio into gold, positioning it as a superior inflation hedge over Treasuries and suggesting shorter-duration bonds to optimize rolling returns. Wilson explained:

“Gold is now the asset that demonstrates resilience, surpassing Treasuries. High-quality stocks and gold serve as the most effective hedges.”

This marks a break from tradition, as gold outperformed bonds as the classic diversifier for equity portfolios over the last two decades.

There has been a global uptick in gold purchases lately, with El Salvador, the BRICs (Brazil, Russia, India, and China), and Poland all ramping up purchases to historic levels, and central bankers expecting to buy more gold.

For investors, this means revisiting assumptions about risk protection. Gold’s safe-haven profile and independence from real rates have converted it into a portfolio mainstay.

Morgan Stanley acknowledges that U.S. equities offer “historically low upside” over Treasuries, while long-term bonds are under pressure from rising yields and tight credit spreads.

Implications for investors

For investors, the new split offers greater protection against inflation and geopolitical risk, which is critical as central banks face supply-side dilemmas and surging deficits.

For the U.S. Treasury, Morgan Stanley’s revised portfolio falls like rain on a picnic, as macroeconomist and goldbug Peter Schiff pointed out:

“The only way to go from a 60/40 portfolio to a 60/20/20 portfolio is to sell bonds. This amounts to Morgan Stanley reducing U.S. Treasuries to a sell. This could not have come at a worse time, as the U.S. Treasury needs to issue more Treasuries than ever before.”

The 60/20/20 portfolio offers higher risk-adjusted returns compared to a pure reliance on bonds, given the fragility of credit markets and uneven rate hikes. Gold’s “anti-fragile” status complements high-quality equity holdings, especially as real interest rates decline in downturns.

Morgan Stanley recommends shorter-duration Treasuries for bond allocations, focusing on five-year notes to better capture returns.

Huge For Gold and Silver

Gold, silver, and related mining stocks account for less than 2% of global invested capital. So a standard portfolio that calls for 20% gold would be an earthquake, depleting available gold inventories and spiking the metal’s price. This in turn would send silver — a tiny, thinly traded market — through the roof.

Today, in short, is NOT the time to take profits in physical precious metals. Keep stacking.