A classic and widely touted investment strategy looks poised to deliver meager returns for investors in the coming years.
Forecasters at Bank of America said they think the classic 60/40 portfolio — an investment portfolio split between 60% stocks and 40% bonds — was likely headed for a yearslong stretch of weak performance.
The bank predicted the classic portfolio mix would return less than 1% next year after accounting for inflation, and that the portfolio would deliver a real loss of 0.1% over the next 10 years.
That’s partly because large-cap stocks in the US are likely to underperform after three consecutive years of stellar growth, the bank said.
“The math of history is tough: average returns for the S&P 500 after 3 years of >15% growth are 2.3ppt lower than the average annual return. Investors may need GDP & EPS surprises to avoid a seventh ‘lost decade,'” strategists on the bank’s Research Investment Committee wrote of the 60/40 portfolio.
“Given such an uncertain core, in our view it is a great time to add ‘satellite’ allocations to underappreciated regions, sectors, and investment themes,” they added.
The bank highlighted six satellite trades comprising what it thinks are the best non-consensus investing ideas going forward.
1. International small and mid-cap stocks
International small- and mid-cap value stocks have seen an annual return of 15% over the last five years. That’s on par with large-cap growth stocks in the US; however, international SMID companies have seen less volatility to the downside, faster earnings growth, and appear more attractive from a valuation standpoint, strategists said.
2. Quality US stocks
Bank of America Global Research
Quality stocks, typically defined as companies with strong financials and low debt, have been one of the brightest spots in the US market in recent years. Stocks in the category have outperformed momentum, growth, value, dividend, and small-cap stocks, Bank of America said, citing its analysis of returns dating back to 1996.
3. High-yield bonds
“US high yield presents the best opportunity in credit, with higher quality than loans or private credit, and enough duration to benefit from a Fed easing cycle, according to our strategists,” the bank wrote, adding that it expected high-yield bonds to outperform investment-grade bonds and loans next year.
The default rate on high-yield loans in the US also hovers around 2.6%, lower than the default rate on private credit and syndicated loans, strategists said.
4. Emerging market fixed income
Emerging market debt has also outperformed similar investments in the fixed-income space in recent years. The asset class tends to offer investors a higher yield and has outperformed US and global bonds over the last three years, BofA said.
Portfolios that include high-dividend-paying emerging market stocks have also returned around 9%-12% a year over the last five years, compared to the 5% return on the MSCI emerging markets benchmark, according to the bank’s analysis.
“With 2026 expected to be the year of easing in EM, we seek income through EM debt and dividend stocks, both of which outpace common benchmarks,” strategists wrote.
5. Gold and commodities
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The bank expects gold to rally to $4,538 an ounce next year, implying 8% upside from current levels. That’s because the factors that drove bullion’s rally this year are expected to persist, strategists said, pointing to catalysts like large central bank demand and growing fiscal deficits around the world.
In a previous note, the bank also said it believed that commodities were one of the best investments in 2026 as the US economy sees strong growth, fiscal and monetary policy stimulus, and potentially hotter inflation next year.
6. Key investment themes
Investors should also consider stocks that align with key themes in the market, BofA said.
Strategists highlighted three investment ideas in particular that they believed had “long-term prospects for more upside.”
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