Most people think they have a balanced portfolio.
They don’t. They have whatever their 401(k) menu offered 15 years ago, plus a target-date fund, plus the slow accumulation of mistakes that come from never rebalancing.
For two generations, the default answer to “how should I invest?” has been some version of the 60/40 split, with 60% in stocks and 40% in bonds, set it and forget it.
Vanguard built an empire on it. Your dad built his retirement on it. In 2022 it cratered, with both legs falling at the same time. It snapped back. Most people went back to ignoring their statements.
This past Friday (April 24), the chief investment strategist at Bank of America (BAC) quietly pointed out something Wall Street is going to be chewing on for months.
A different allocation, one almost nobody outside of pension boards bothers with, is having a year for the history books.
Michael Hartnett calls it the “sleep like a baby” portfolio. It splits a dollar four ways. And it just posted its best year since 1933.
What the ‘sleep like a baby’ allocation actually holds
Hartnett’s weekly Flow Show note, sent to BofA clients, lays out a portfolio that ignores most of the conventional wisdom about modern asset allocation.
Instead of leaning hard on equities, the strategy splits a dollar four ways. Twenty-five percent in stocks. Twenty-five in bonds. Twenty-five in cash. Twenty-five in commodities.
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That mix is up roughly 26% year to date and is having its best year since 1933, ranking as its third-largest outperformance over the 60/40 in a century, according to CNBC.
The two larger gaps came in 1946, when post-war inflation hammered bonds, and 1973, when the oil shock kicked off stagflation, per BofA’s flow data reviewed by The Globe and Mail.
What jumped out at me when I cross-referenced Hartnett’s numbers against this year’s actual asset prices was how lopsided the contribution has been. Stocks are running at a respectable 14% annualized clip. The portfolio’s real engine has been gold, up at a roughly 31% annualized pace.
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How the strategy has stacked up against the 60/40
The historical comparison Hartnett drew points to a small handful of years where the 25/25/25/25 mix decisively lapped the classic split:
- 1933: The strategy’s previous best year, as the U.S. economy clawed its way out of the Great Depression, per BofA’s flow data.
- 1946: The largest 60/40 outperformance on BofA’s century chart, when post-war inflation gutted bond returns, per The Globe and Mail’s review of Hartnett’s note.
- 1973: The second-largest gap, during the oil embargo and the onset of stagflation, per BofA.
- 2026: Tracking the third-largest outperformance, with the portfolio up about 26% year to date, per CNBC.
Hartnett’s takeaway is hard to argue with even if you don’t follow it. The strategy is “not for all, but returns force allocators to raise low exposure to commodities,” he wrote, according to CNBC.
BofA’s data shows private clients hold an average of just 0.4% of their portfolios in gold.
Translation: most retail investors aren’t anywhere near 25% commodities. They aren’t anywhere near 5%. They are barely above zero.
Why the 60/40 portfolio is losing its grip on Wall Street
The “sleep like a baby” performance is landing at a moment when even the people who built the 60/40 industry are quietly walking away from it.
The most public defection came last spring from BlackRock (BLK) chief executive Larry Fink. The classic 60/40 portfolio “may no longer fully represent true diversification,” Fink wrote in his annual letter, according to Yahoo Finance.
Fink’s pitch is a 50/30/20 split, with 50% stocks, 30% bonds, and 20% in private assets like real estate, infrastructure, and private credit.
Hartnett’s pitch is different but rhymes. Both men are saying the same underlying thing. Two assets are not enough.
The 60/40 quietly assumes stocks and bonds will move in opposite directions when things break. In 2022, they did not. Both fell. Anyone holding the classic split watched 20%-plus losses pile up on both sides of the ledger at the same time.
In my analysis of the last 100 years of asset returns, that simultaneous breakdown is exactly the kind of tail risk that 25% commodities and 25% cash are meant to absorb. Cash earned almost nothing in 2022, but it didn’t lose. Gold finished 2022 roughly flat. Either alone would have rescued a 60/40 portfolio.
Hartnett also flagged that the semiconductor index is the most overbought relative to its 200-day moving average since June 2000, per The Globe and Mail’s review of his note. That’s a reference to the dot-com peak.
Translation for retail investors: the part of your portfolio doing the most work right now might also be the most fragile.
What this means for your portfolio in 2026
Translating Hartnett’s allocation into something a normal investor can act on takes a bit of work.
The simplest version splits investable savings four ways. SPDR S&P 500 ETF (SPY) for stocks. iShares 20+ Year Treasury Bond ETF (TLT) for bonds. A short-term Treasury fund or high-yield savings account for cash. Invesco DB Commodity Index Tracking Fund (DBC) or SPDR Gold Shares (GLD) for commodities.
The harder question is whether you actually want to do that.
Twenty-five percent in cash will feel painful in a year when the S&P 500 makes another fresh high. Twenty-five percent in commodities will feel painful in a year when oil dumps and gold cools. The whole point of “sleep like a baby” is that it never wins everything in a given year, but it is supposed to never blow up either.
The bull case for staying overweight commodities, even after gold’s run, comes from Wall Street’s biggest research desks.
“We expect gold demand to push prices toward $5,000/oz by year-end 2026,” wrote Natasha Kaneva, head of global commodities strategy, according to J.P. Morgan Global Research. The bank’s research team has gold averaging $5,055 in the final quarter of this year and rising toward $5,400 by late 2027.
UBS‘s chief investment office is even more aggressive, projecting gold could climb as high as $6,200 an ounce by mid-2026, citing central bank demand, large fiscal deficits, and lower real U.S. rates, according to UBS.
If either firm is close to right, a portfolio with zero exposure to commodities is going to look very strange in 12 months.
The takeaway, the way I read Hartnett’s note, is not that you should mirror the 25/25/25/25 split exactly. It is that 0.4% in gold is not a portfolio decision. It is an accident.
Where the 25/25/25/25 portfolio goes from here
Hartnett himself flagged in the same note that long stretches of double-digit gains tend to end the same way, regardless of what drove them.
War (1946). Peace (1953). Bubble (2000). Stagflation (1974, 1980). Each ended with a sharp burst of volatility.
Stocks have now been compounding at double-digit rates for three of the past four years. Gold is on a similar streak. The setup is unusual. The exit is rarely clean.
For ordinary investors, the practical question isn’t whether to copy a Wall Street strategist’s barbell. It’s whether your portfolio is built for the year you hope happens, or the year you cannot predict.
The 60/40 was designed for the second job. So is “sleep like a baby.” The difference is what each one assumes will hold up when stocks fail.
Bonds didn’t hold in 2022. Cash and gold did.
If the next dislocation looks anything like the last one, the people earning 26% this year are going to look a lot smarter than the people still clinging to a 1980s allocation chart.
That’s the part of Hartnett’s note worth sleeping on.
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