A lot of long-term portfolios quietly default to a “benchmark-first” approach: own what the market owns, in roughly the same proportions the market assigns. It sounds sensible—after all, a global, market-value-weighted mix of assets can look like the ultimate diversified portfolio. But research suggests that simply tracking broad multi-asset benchmarks is often not optimal, partly because benchmarks can be backward-looking, dominated by the largest assets, and light on important diversifiers and “non-benchmark” opportunities.
If you’re trying to position a portfolio for the next 10 years, a more useful approach is to treat benchmarks as a starting point—then make deliberate choices around diversification, currency exposure, inflation protection, and alternative assets.
1) Start With the “World Portfolio” Idea—Then Improve It
A global “world portfolio” concept aims to represent most investable assets worldwide and is often used (directly or indirectly) as a reference point for multi-asset allocations. But there are two big issues:
- Concentration in the biggest assets: Market-weighted benchmarks can become dominated by whatever has grown the most and whatever is easiest to measure and trade.
- Blind spots: Benchmarks can underrepresent (or exclude) areas like certain emerging market opportunities, commodities, and alternatives—plus many real-world stores of value that aren’t neatly captured by public markets.
Bottom line: A benchmark can be “global” and still miss meaningful diversification.
2) Don’t Assume “Passive = Best” for Multi-Asset Portfolios
Passive indexing can be a great tool—especially for building broad exposure at low cost. But when it comes to multi-asset allocation, the argument here is that being purely passive can leave opportunity on the table.
Historically, simple mixes have sometimes beaten a broad world benchmark on a risk-adjusted basis—for example, the classic 60% stocks / 40% bonds mix has shown stronger risk-adjusted performance over very long windows in the analysis referenced. The bigger takeaway isn’t that one fixed mix is “the answer,” but that thoughtful allocation choices can improve outcomes versus just accepting benchmark weights.
3) Use “Strategic Tilting” Instead of Static Benchmark Weights
One practical framework described is strategic tilting: start from a benchmark-like allocation, then increase or decrease exposures based on forward-looking expectations for risk-adjusted returns (often discussed in terms of improving the portfolio’s Sharpe ratio).
Instead of asking, “What does the market own?” you ask:
- “What assets look underrepresented given future risks and return potential?”
- “Where is the portfolio overly concentrated?”
- “What diversifiers are missing?”
This approach is meant to be realistic—not wild market timing—but it still accepts that asset allocation decisions add value.
4) Re-Think the Big Three: Stocks, Bonds, and Gold
A common benchmark mix may hold a substantial share in equities, a large share in bonds, and a relatively small share in gold. The argument presented is that:
- Equities have historically outperformed bonds over long periods (the analysis cites a long-run equity premium in the ballpark of several percentage points per year).
- Gold may play a larger role than many benchmarks assign to it—especially as a potential hedge when inflation shocks hurt traditional stock/bond mixes. The benchmark weight to gold cited is low relative to “recent optimal levels” in their analysis, suggesting vulnerability to inflationary pressure.
This isn’t saying “gold should be half your portfolio.” It’s saying real assets and inflation hedges may deserve an intentional seat at the table, rather than whatever tiny weight a benchmark happens to give them.
5) Reduce Over-Reliance on One Country—and Manage Currency Risk
Many global benchmarks are heavily influenced by U.S. assets, especially U.S. equities. That dominance can be a feature when the U.S. leads—but it also becomes a concentration risk.
Two key points raised:
- International diversification may be more important going forward—particularly if high valuations and heavy mega-cap concentration make it harder for U.S. equities to sustain long-run outperformance.
- Foreign exchange (FX) risk deserves more active attention. If the U.S. dollar weakens, currency moves can materially change returns for global investors.
The analysis highlights that exposure to certain assets (including some emerging market assets, gold, or safe-haven currencies like the Swiss franc) may reduce portfolio risk tied to a weakening dollar.
6) Consider Alternatives and Private Markets as a “Fourth Pillar”
Another major theme is that private markets have grown significantly and may help investors seek higher returns with potentially less volatility, particularly when underlying assets are actively managed.
In addition, certain liquid alternatives (including some hedge fund approaches) may offer:
- Lower correlation to traditional benchmark portfolios, and
- Better behavior in crisis-like environments (depending on strategy).
This isn’t a blanket endorsement—alternatives can bring fees, complexity, illiquidity, and manager selection risk. But it’s an argument that a “next decade” portfolio may benefit from looking beyond the public stock/bond default.
7) Practical Blueprint: A Global Portfolio Checklist
If you want a simple way to apply these ideas without overcomplicating your plan, use this checklist:
- Set a benchmark-like base mix (stocks/bonds/cash) aligned with your goals and risk tolerance.
- Audit concentration risk: How much is effectively riding on one country, one sector, or a handful of mega caps?
- Add intentional diversifiers: Consider whether real assets (like gold) or other diversifiers are underweighted relative to the risks you care about (inflation, drawdowns).
- Decide your FX stance: Are you leaving currency exposure unhedged by default, partially hedging, or actively managing it?
- Evaluate alternatives thoughtfully: If you use private markets or liquid alternatives, define their role (return enhancement, volatility reduction, inflation hedge, crisis protection) and respect their tradeoffs.
- Rebalance and revisit: Even strategic tilts should be reviewed periodically as valuations, growth, and inflation dynamics change.
Closing Thought
A world benchmark can be a useful map—but it’s not a finished travel plan. For the next decade, the core message is to look beyond passive, market-weighted defaults, address U.S. concentration and currency risk, and consider whether real assets and alternatives deserve a more intentional role in your long-term mix.