As the 60/20/20 portfolio strategy gains traction; Gold becoming a "core allocation"

Last month, Morgan Stanley CIO Michael Wilson suggested a seismic shift in investment strategy when he recommended a 20 percent allocation to gold. It appears investors are starting to take this advice to heart.

Historically, the conventional wisdom on Wall Street was a 60/40 portfolio, with 60 percent of the holdings in equities and 40 percent in fixed-income investments, primarily bonds. The theory is that these asset classes balance each other, with stocks strengthening in a strong economy and bonds creating a hedge during downturns.

Given changing market dynamics, Wilson said investors should consider a 60/20/20 strategy, swapping half of the bond portfolio for gold to serve as a “more resilient” inflation hedge.

Just days later, Sprott director of ETF management, Steven Schoffstall, echoed Wilson on CNBC, saying a 20 percent allocation to gold and silver will likely yield a better return than a traditional portfolio.

It appears investors have heard the message.

According to Wisdom Tree analysts, “a quiet revolution” is taking shape within investment portfolios because the traditional 60/40 model doesn’t work anymore.

“For decades, the 60/40 mix—60 percent equities, 40 percent bonds—was the shorthand for prudence, diversification, and balance. But the regime that made that formula work—low inflation, stable growth, and negative stock-bond return correlations—appears to have shifted.”

Bonds seem to have lost their safe-haven status in recent months. Last spring, at the height of tariff uncertainty, gold and silver rallied as bonds sold off. Gold and silver seem to be the last safe havens standing.

Wisdom Tree analysts say investors have noticed. Since 2022, there has been a growing number of people questioning how well bonds balance equity risk, and they are turning to gold.

And for good reason.

“Gold is not just a store of value; it's a statement about the limits of paper promises.”

In a world where the government relentlessly inflates the currency and destroys purchasing power, investors are losing faith in those paper promises.

“In this new macro geometry, investors are re-examining what the ‘40’ should really be. Morgan Stanley's latest Global Insights calls gold ‘an attractive hedge against fiscal largesse and geopolitics,’ noting its 50 percent rally year-to-date and near-zero equity correlation.”

Historically, gold has fallen when long-term interest rates rise. The Wisdom Tree analysts said this dynamic has broken down in recent years because investors now perceive those higher rates as bearish. Now, portfolio managers are “beginning to re-engineer portfolios for an era of structural deficits and active fiscal policy.” They cite the massive inflows of gold into ETFs – $10 billion in September alone.

“The asset's behavior has evolved: what was once a rate-sensitive trade has become a fiscal-risk hedge. Correlations with Treasury yields have flipped from deeply negative to positive, implying that gold now rises with, not against, higher long-term rates when those rates reflect sovereign stress. That's an inversion of an old mental model.”

This shift is already evident in Europe. Wisdom Tree’s 2025 investor survey of investors in the EU and the UK, 41 percent identified gold as their preferred store of value, well ahead of both the dollar and Bitcoin.

And they are putting their money where their mouths are. According to Wisdom Tree, the average portfolio allocations to gold now stand at 5.7 percent in the EU, equal to holdings in developed-market sovereign debt.

“That balance suggests gold is no longer viewed as a fringe diversifier but as a mainstream, fixed component of institutional portfolios.”

The Wisdom Tree analysts emphasized investors aren’t just turning to gold to sidestep market volatility. They’re hedging against counterparty risk.

“They're buying the only liquid asset that sits outside the liabilities of any government or central bank.”

Wisdom Tree called this “a profound shift” as investors realize “the architecture of portfolio resilience is changing.”

“Instead of treating gold as an accessory to a portfolio, some strategists now treat it as a core sleeve of real assets—a 20 percent reallocation from the bond bucket that acknowledges diversification is no longer about opposites, but about orthogonality.”

While some may view the new 60/20/20 model as a radical break from traditional portfolio strategy, the Wisdom Tree analysts said it could be seen as “less a radical break than a quiet return to first principles: holding something that no one else owes you.”

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