ETFs

By Tony Dong, MSc, CETF on August 22, 2025
Estimated reading time: 7 minutes

By Tony Dong, MSc, CETF on August 22, 2025
Estimated reading time: 7 minutes

This more sophisticated alternative to the 60/40 portfolio promises to avoid down years like 2022. Is it achievable for DIY investors? Yes, with caveats.

The unique market conditions of the 2022 bear market exposed a major flaw in the traditional 60% stocks/40% bonds balanced portfolio used by millions of investors. That year was defined by two forces: surging inflation across both the U.S. and Canada, and aggressive interest rate hikes by their respective central banks.

From January to December 2022, the Vanguard Balanced ETF Portfolio (VBAL), which holds a 60/40 mix, lost 15.04%, nearly as much as the 16.88% decline posted by the 100%-stocks Vanguard All-Equity ETF Portfolio (VEQT). The problem wasn’t the stocks; investors should expect volatility with them. It was the bonds.

As interest rates spiked to combat inflation, the bond component of VBAL was hit hard. Its higher-than-average intermediate duration (a measure of rate sensitivity) meant that prices fell more sharply than shorter-term bond holdings might have. This caught many conservative investors off guard, particularly those who believed fixed income would provide ballast in a downturn.

In response, many portfolio strategists began proposing a new model: the 40/30/30. That’s 40% equities, 30% bonds, and 30% alternatives.

While institutions and advisors have access to sophisticated private alternatives to make this work, the question is whether Canadian retail investors can replicate a similar structure using publicly listed ETFs. Here’s my take, and some suggested ETFs to obtain exposure to the alternative space.

The 40/30/30 portfolio is a conceptual framework that modifies the traditional balanced portfolio by carving out space for alternative assets. The idea is to introduce a third asset class that behaves differently from the other two.

In periods like 2022, when both stocks and bonds declined together due to rising inflation and interest rates, traditional diversification strategies failed. The extra alternatives sleeve is designed to preserve capital in times when the other two pillars of a portfolio move........

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