A look in the rear mirror

We all remember the efficient frontier from business school. Harry Markowitz, who received the Nobel Memorial Prize in Economics in 1990 for his work on portfolio theory, formalised a powerful idea: combining assets that are less correlated can improve the risk/return profile of a portfolio. Diversification can therefore reduce overall portfolio risk without necessarily sacrificing return.
For decades, the textbook implementation was the 60/40 portfolio: equities for growth, bonds for diversification and stability. As the chart shows, this worked splendidly between 1986 and 2020.
But 2021–2025 was very different. Bonds failed to provide the diversification investors had become accustomed to, while gold — and, to a smaller extent, Bitcoin — proved to be much more effective diversifiers.
An interesting rear-view mirror, but still a rear-view mirror. With bond yields having normalised materially, it may be far too early to declare the death of the traditional 60/40 portfolio. The diversifier that worked best yesterday is not necessarily the one that will work best tomorrow.
Something to chew on.