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Is it time to rethink the 60/40 portfolio? How alternatives can help build more resilient portfolios

Explore why it may be time to look beyond the traditional 60/40 portfolio, and how alternatives, especially via ETFs, can offer a fresh way to diversify and strengthen portfolios for the future.

July 16, 2025 4 min read

While the 60/40 portfolio is arguably the most recognized asset allocation approach in investment management, increased stock and bond correlations have tested the standard since 2022. How can today’s investors access optimal diversification and hedge portfolios against concentration risks? The answer may be through alternative asset classes.

First, what is the 60/40 portfolio?

For decades, the 60/40 portfolio—a mix of 60% stocks and 40% bonds—has been a go-to strategy for investors seeking portfolio diversification. It’s a framework rooted in Modern Portfolio Theory, pioneered by American economist Harry Markowitz, which argues that diversifying across uncorrelated asset classes can improve overall returns while reducing risks.

Historically, the model served investors well. Stocks offered investors growth potential while bonds provided stability and income over the long term. When stocks underperformed, bonds often rallied, smoothing out portfolio losses, and vice versa.

As a result of its simplicity and efficiency, the 60/40 portfolio has been a popular strategy for countless retirement plans, wealth models, and target-date funds. And for many investors, it may still be the go-to strategy even today.

But there are challenges facing the 60/40 portfolio

As market dynamics evolve, the assumptions that underpinned the 60/40 portfolio are being tested:

1. Stocks and bonds can, and do, become positively correlated

The idea underpinning the 60/40 portfolio is that when your stocks are going down, your negatively correlated bonds might go up and smooth out the ride. One of the biggest risks to the 60/40 structure is that the two asset classes sometimes move in lockstep. Back in 2022, both suffered meaningful drawdowns as inflation spiked and interest rates surged. As a result, the 60/40 portfolio delivered one of its worst performances in decades.

In fact, stocks and bonds have now exhibited positive correlation for more than 700 days,¹ and that number continues to rise. Adding to the heartburn of checking your portfolio in a troubled market, you’ll find greater losses in many concentrated stock market indices that seemingly magnify the losses from your bonds.

Figure 1: The 60/40 may not offer true diversification

700+

Days of rolling positive correlation across stocks and bonds

Stocks account for 33.6% of US S&P 500® market cap

Source: State Street Investment Management, Bloomberg Finance, L.P., MSCI, as of March 31, 2025.

2. Diversification may be deceiving

A basket of stocks and a basket of bonds may seem like true diversification. But when stocks and bonds are moving together, where do you go?

Relying on just two asset classes may not provide the diversified exposure investors truly need, and so it’s important to seek out opportunities for portfolio exposure beyond stocks and bonds to help balance risk across different growth and inflation environments.

3. Risk isn’t evenly distributed

Another misconception of the 60/40 portfolio is that it offers balanced risk. In reality, stocks—in part due to their higher volatility—tend to dominate the portfolio’s risk profile (Figure 2). That means many investors who think they’re diversified may still be taking on more risk than they realize.

What our Chief Investment Strategist says about the 60/40

“What worked under that previous 40-year period [1982-2022]—traditional 60/40 portfolios, for example—will be far less likely to work going forward. And, you may need to modify allocations to more diverse market segments.”
– Michael Arone, Chief Investment Strategist

Get more inside our ETF Impact Report 2025-2026.

Looking beyond the 60/40 portfolio: Meet alternatives

The long-term asset allocation game is still important to play, but the 60/40 playbook may need a refresh—because in today’s market, even the most established pairs can be tested. Increasingly, investors across the board are seeking ways to enhance diversification, reduce correlation risk, and position for new sources of return.

And according to our 2025 ETFs in Focus Study, it looks like alternatives will continue to gain ground (Figure 3).

Figure 3: Alternative allocations are gaining traction, especially among advisors

14%

of investors are allocating to alternative investments

50%

of financial advisors are allocating to alternative investments/strategies to manage portfolio risk

Source: State Street Investment Management Center for Investor Research, 2025 ETFs in Focus Study: Risk Management Attitudes and Behaviors, January/February 2025. Questions asked: How do you approach managing risk in your investment portfolio? (Select all that apply) | Base: Total; What strategies are you currently using to manage portfolio risk? (Select all that apply) | Base: Total

Why? Alternative investments are becoming more accessible through ETFs—and that’s shaking up the traditional portfolio model. Through alternatives, investors can now access a range of non-traditional assets and strategies that may behave differently than stocks and bonds, helping to improve diversification and reduce the risk of asset class correlations.

The growth of alternative ETFs

Investor interest has surged in recent years. In fact, global assets under management hit $148.8 billion by December 2024 (Figure 4),² reflecting a broader recognition that the traditional 60/40 model may no longer be sufficient on its own.

How alternative investments can help a portfolio

Alternative investments—exposure and strategies once reserved for only the most sophisticated institutional portfolios—are now more accessible than ever, thanks to the rapid rise of alternative ETFs.

These vehicles offer exposure to assets and strategies that behave differently from stocks and bonds (commodities and hedge fund-style approaches, for example). They can help investors spread risk more evenly, tap into uncorrelated return streams, and build portfolios that are more resilient across economic or market regimes.

Where alternative ETF demand is headed

Considering an allocation to alternatives for your portfolio? Here are a few categories available in the ETF wrapper:

Gold

Gold stands out from other commodities and alternatives, potentially offering more efficient diversification—a benefit that may support treating gold as a unique asset class, with a distinct and independent allocation of its own.

Find out how

Digital assets

Invest in the growth potential of new disruptive technologies like blockchain and AI—and in companies poised to benefit from the digital asset revolution—with SPDR^® Galaxy Digital Asset ETFs.

Bridgewater’s All Weather strategy

Go beyond traditional asset allocation to balance risk across growth and inflation environments and prepare portfolios for whatever the market brings.

Find out how

Real assets

Consider a multi-asset ETF that allocates to domestic and international inflation-sensitive markets beyond commodities, including: gold, inflation-linked bonds, infrastructure, real estate, and natural resource stocks.

Find out how

Broad commodities

Seek the diversification benefits of commodities while also potentially reducing the costs associated with rolling over commodity futures contracts—all in an ETF.

Find out how

Rethinking the 60/40 portfolio: The time is now

The 60/40 portfolio had its time, and for many years, worked. But today’s market environment—with rising stock-bond correlations, shifting macro trends, and increased market complexity—calls for more flexibility, more diversification, and more tools to help manage risk as investors navigate the road ahead.

While there’s no one-size-fits-all solution, today’s ETF landscape offers cost-efficient, liquid, and diversified access to alternative investments—helping investors build more resilient portfolios in today’s dynamic market.

What’s next for today’s dynamic ETF market?

Explore top trends and bold predictions for the future in our latest ETF Impact Report.

Get the report

Glossary

Footnotes

Disclosure

Important Risk Information

State Street Global Advisors (SSGA) is now State Street Investment Management. Please click here for more information.

Investing involves risk, including the risk of loss of principal.

This communication is not intended to be an investment recommendation or investment advice and should not be relied upon as such.

The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor.

Equity securities may fluctuate in value and can decline significantly in response to the activities of individual companies and general market and economic conditions.

Bonds generally present less short-term risk and volatility than stocks, but contain interest rate risk (as interest rates raise, bond prices usually fall); issuer default risk; issuer credit risk; liquidity risk; and inflation risk. These effects are usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.

The value of the debt securities may increase or decrease as a result of the following: market fluctuations, increases in interest rates, inability of issuers to repay principal and interest or illiquidity in the debt securities markets; the risk of low rates of return due to reinvestment of securities during periods of falling interest rates or repayment by issuers with higher coupon or interest rates; and/or the risk of low income due to falling interest rates. To the extent that interest rates rise, certain underlying obligations may be paid off substantially slower than originally anticipated and the value of those securities may fall sharply. This may result in a reduction in income from debt securities income.

Commodities and commodity-index linked securities may be affected by changes in overall market movements, changes in interest rates, and other factors such as weather, disease, embargoes, or political and regulatory developments, as well as trading activity of speculators and arbitrageurs in the underlying commodities.

Investing in commodities entails significant risk and is not appropriate for all investors.

Commodities and Commodity-Linked Derivatives: Commodity prices can have significant volatility, and exposure to commodities can cause the net asset value of Fund Shares to decline or fluctuate in a rapid and unpredictable manner. A liquid secondary market may not exist for certain commodity investments, which may make it difficult for the Fund to sell them at a desirable price or at the price at which it is carrying them.

Derivatives Risk. A derivative is a financial contract the value of which depends on, or is derived from, the value of an underlying asset, interest rate, or index. Derivative transactions typically involve leverage and may have significant volatility. It is possible that a derivative transaction will result in a loss greater than the principal amount invested, and the Fund may not be able to close out a derivative transaction at a favorable time or price.

Frequent trading of ETFs could significantly increase commissions and other costs such that they may offset any savings from low fees or costs.

There can be no assurance that a liquid market will be maintained for ETF shares.

Diversification does not ensure a profit or guarantee against loss.

Passively managed funds invest by sampling the index, holding a range of securities that, in the aggregate, approximates the full Index in terms of key risk factors and other characteristics. This may cause the fund to experience tracking errors relative to performance of the index.

Actively managed funds do not seek to replicate the performance of a specified index. An actively managed fund may underperform its benchmark. An investment in the fund is not appropriate for all investors and is not intended to be a complete investment program. Investing in the fund involves risks, including the risk that investors may receive little or no return on the investment or that investors may lose part or even all of the investment.

Privately issued securities are securities that have not been registered under the Securities Act and as a result are subject to legal restrictions on resale. Privately-issued securities are not traded on established markets and may be illiquid, difficult to value and subject to wide fluctuations in value. Limitations on the resale of these securities may have an adverse effect on their marketability, and may prevent the Fund from disposing of them promptly at reasonable prices.

Non-diversified fund may invest in a relatively small number of issuers. The value of shares of non-diversified funds may be more volatile than the values of shares of more diversified funds.

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Bridgewater provides a daily model portfolio to SSGA FM based on their proprietary All Weather® asset allocation approach. The model portfolio is specific to the Fund. Based on Bridgewater's investment recommendations, SSGA FM purchases and sells securities and/or instruments for the Fund. SSGA FM seeks to implement Bridgewater's investment recommendations, but may change the Fund's investment allocation at any time.

All information is from State Street Investment Management unless otherwise noted and has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability, or completeness of, nor liability for, decisions based on such information and it should not be relied upon as such.

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