Earlier this month, Vanguard sent me a helpful email reminder: “We noticed you’re holding cash in your IRA,” it read. “While cash can be a great option for short-term goals, it doesn’t tend to hold its value in the long-term due to inflation.”
It wasn’t a solicitation. Or if it was, it was a dumb one: The “cash” they were referring to is in a Vanguard federal money market fund that sports an expense ratio triple the fee on VOO. So from a fee perspective, they’re better off if that cash stays in cash. Vanguard, God bless ’em, was just tryin’ to help by reminding me that if I’m interested in growing my retirement savings, I might “consider investing in a diversified mix of stocks and bonds.”
Of course, I already have a “diversified mix of stocks and bonds” in that same account, and also in a separate Vanguard brokerage account. The “problem,” from the perspective of some algorithmic robo-advisor over there, is that my short-term reserve allocation’s too large (i.e., too conservative) as a share of my overall balance given my age.
Well, guess what Vanguard? That allocation’s deliberate and strategic. Here’s the rationale:
In the 2020s, a portfolio of 25% stocks, 25% Treasurys, 25% cash and 25% gold has matched the vaunted 60/40 split, returning an average of 9%.
As the chart shows, the 25s portfolio spared you a lot of pain in 2022, when inflation and the most aggressive Fed-hiking campaign in a generation weighed on big-tech multiples and torpedoed bonds. In 2024 and, so far anyway, in 2025, the 25s beats 60/40, helped along by a historic two-year surge for gold and still-high cash returns.
The figures I used for the chart are from the latest edition of BofA’s weekly “Flow Show” series which has a solid claim on being the most popular sell-side weekly in history. One day, Michael Hartnett will retire and we’ll all be sad about it. Flow Show, continue on though it will, just won’t be the same.
I’ve obviously written quite a bit about the uncertain fate of 60/40 in a terrifying new macro reality and, relatedly, in the context of geostrategic shifts which likewise pose a threat to the correlation assumption at the heart of the 60/40 religion.
The 60/40 debate comes down to one question: Were we naive to assume the allegedly durable shift to a consistently negative stock-bond return correlation beginning in the second decade of The Great Moderation constituted the “new normal”?
There’s still no definitive answer. All we know right now, halfway through this century’s “Roarin’ 20s,” is that when inflation’s running hot and rates are high, an “extreme” (that’s Hartnett’s word) 25/25/25/25 stocks/bonds/cash/gold portfolio can outperform 60/40.
So, thanks anyway Vanguard. I know you meant well. But I’ll hang onto all that cash, and also to the modest GLD position I have in the same portfolio. At least for the time being.
