Yaniv Bertele Explains Why the Off‑the‑Shelf 60/40 Needs an Upgrade
For nearly a century, the 60/40 portfolio, 60% stocks, 40% bonds, stood as the cornerstone of prudent investing. The model promised balance: equities provided growth during expansions while bonds offered stability during downturns. When stocks zigged, bonds zagged. Generations of financial advisors built careers recommending variations on this theme, confident that the negative correlation between these asset classes would protect client wealth through any market environment.
That confidence is evaporating. As industry leaders, including BlackRock’s Larry Fink, have noted in recent years, the traditional 60/40 portfolio model faces serious challenges in the current environment. The mathematics are stark: in 2022, a global 60/40 fell ~16% as inflation drove stocks and core bonds down together, the diversification promise breaks down. Rising interest rates torpedoed bond values just as equity markets tumbled, leaving investors with nowhere to hide. Stock-bond correlation is regime‑dependent; inflation shocks lift it, reducing diversification when investors need it most.
Yaniv Bertele, founder of EverOak Innovations and former head of corporate venture capital at Israel’s National Water Company, has conducted research quantifying exactly how broken the 60/40 model has become and, more importantly, what investors can do about it. His findings suggest that life settlements, the secondary market for life insurance policies, offer empirical solutions to the diversification crisis facing modern portfolios. The research moves beyond theoretical arguments to demonstrate measurable improvements in risk-adjusted returns through strategic allocation to truly uncorrelated assets. Peer‑reviewed work shows low to negative correlation with major stock/bond indices; long‑run studies estimate ~8% average annual policy‑level returns (1993–2009), with manager dispersion.
The Research: Quantifying the Life Settlements Advantage
The traditional 60/40 model rested on a critical assumption: bonds would provide stability and positive returns when equities declined. This negative correlation formed the diversification engine that made the portfolio work. But the relationship has fundamentally changed. In low or rising interest rate environments, bonds no longer deliver the protective benefits investors expect. Meanwhile, alternative assets that were supposed to provide diversification, real estate, commodities, and even cryptocurrency, have shown concerning correlation with equity markets during stress periods.
Recognizing this crisis, Bertele and his team at EverOak designed research to test whether life settlements could provide the genuine diversification that traditional bonds no longer deliver. The methodology was straightforward but rigorous: model portfolios where varying percentages of the bond allocation were replaced with life settlements, then analyze the impact on returns, volatility, and risk-adjusted performance metrics.
“We’ve conducted a study in which we substituted I think 5%, 10%, 15% and 20% of a 60/40 portfolio with life settlements and shown how the returns and the standard deviation returns are going up and the standard deviation is going lower, hence proving that it is a future-proof portfolio construction,” Bertele explains.
The results were consistent across allocation levels. Even modest substitutions, replacing just 5% of the traditional bond holdings with life settlements, demonstrated measurable improvement. Returns increased while standard deviation decreased as the higher-yielding life settlement allocation boosted overall portfolio income. More significantly, volatility decreased as the uncorrelated nature of life settlements dampened overall portfolio fluctuations. The Sharpe ratio, the gold standard metric for risk-adjusted returns, improved at every allocation level tested.
At higher allocation levels, the benefits compounded. A 20% substitution delivered substantially better risk-adjusted returns than the traditional model, while maintaining the capital preservation characteristics that make balanced portfolios appropriate for conservative investors. The key driver was genuine lack of correlation: life settlement returns simply don’t move with equity or bond markets because they’re driven by entirely different factors.
Why do life settlements behave so differently? The answer lies in their unique return drivers. Life settlement performance depends on actuarial accuracy, how well investors predict life expectancies, and policy management efficiency. These factors bear no relationship to corporate earnings, interest rate movements, inflation expectations, or geopolitical events that drive traditional securities. An individual’s life expectancy doesn’t change because the Federal Reserve adjusts rates or earnings disappoint on Wall Street.
This independence creates portfolio construction opportunities that other “alternative” investments cannot match. Real estate correlates with economic growth and interest rates. Commodities move with inflation expectations. Private equity ultimately reflects equity market conditions with a lag. Cryptocurrency, despite early claims of independence, has shown high correlation with technology stocks. Life settlements represent one of the few assets that genuinely march to a different drummer.
Yaniv Bertele’s analytical approach reflects his background in physics and mathematics from the University of Gothenburg. Rather than making theoretical arguments, the research provides quantifiable evidence through backtesting and scenario analysis. The methodology can be replicated, the assumptions examined, and the conclusions validated by independent analysis, exactly the rigor institutional investors require before reallocating billions in assets.
Building Volatility-Resistant Portfolios
The practical implications of this research extend beyond academic interest. For investors, financial advisors, and institutional portfolio managers, the question becomes actionable: how do we construct portfolios that can withstand volatility regardless of its source?
“You have some a future-proof portfolio that, regardless of the volatility that comes down the line, you could create a paradigm that would create a future-proof portfolio that would not be shaken by any dramatic volatility in the market,” Bertele argues.
This concept of “future-proofing” deserves examination. Traditional diversification sought to protect against known risks, equity downturns, inflation spikes, currency fluctuations. But modern markets face uncertainties that don’t fit historical patterns: pandemic-driven economic dislocations, unprecedented monetary policy experiments, geopolitical fracturing, and technological disruption. In this environment, portfolios need resilience against unknown risks, not just protection against historical scenarios.
Life settlements provide this resilience through their operational independence from market cycles. During the 2008 financial crisis, life settlement returns continued as predicted because mortality patterns didn’t change with bank failures. During the 2020 pandemic market crash, the asset class maintained stability even as every correlated asset tumbled simultaneously. This track record of actual performance during stress periods provides more comfort than theoretical correlation mathematics.
The portfolio construction implications are significant. “Substituting part of the bonds to life settlements would increase the returns, the Sharpe ratio, et cetera… you change that paradigm,” Bertele notes. This paradigm shift moves from trying to predict which asset class will protect during the next crisis to building portfolios with genuinely independent return sources that inherently reduce volatility.
Implementation requires thoughtfulness about appropriate allocation sizes. The research suggests that even conservative investors can benefit from 5–10% allocations, replacing the lowest-yielding, most interest-rate-sensitive bond holdings. More aggressive portfolios seeking alternative fixed income might allocate 15–20% or higher. The key is ensuring the allocation is sufficient to impact overall portfolio characteristics; a token 1–2% allocation won’t meaningfully change risk profiles.
Risk considerations remain important. Life settlements involve illiquidity, capital commits for multi-year periods. Policies require ongoing premium payments, creating funding obligations. And longevity risk means actual results may vary from projections. But for investors already comfortable with illiquid alternatives like private equity or real estate, these characteristics are manageable rather than prohibitive.
The broader trend is clear: institutional investors are recognizing that traditional diversification tools no longer work as intended. Pension funds, endowments, insurance companies, and family offices are actively searching for genuinely uncorrelated return sources. The allocations flowing toward life settlements and other insurance-linked securities reflect this search for portfolio resilience.
Reimagining Portfolio Construction
The obsolescence of the 60/40 model creates both challenge and opportunity. The challenge is obvious: investors need new frameworks in order to build a more future‑resilient portfolio thatthat is less sensitive to market volatility. The opportunity lies in accessing asset classes that were previously overlooked or inaccessible.
Yaniv Bertele’s research provides a roadmap for this transition. Rather than simply declaring traditional models broken, the work demonstrates quantifiable alternatives backed by empirical analysis. For financial professionals, this creates a foundation for having informed conversations with clients about portfolio evolution. The discussion moves from theoretical concerns about correlation breakdowns to specific proposals with measurable expected outcomes.
The next decade of portfolio construction will likely see continued erosion of traditional allocation models and growing adoption of truly alternative assets. Life settlements represent one option among several, but the unique combination of uncorrelated returns, actuarial predictability, and regulatory maturity positions the asset class as a compelling candidate for broader adoption.
For investors willing to move beyond conventional wisdom, the mathematics are compelling. The traditional 60/40 model served investors well for decades, but market evolution has rendered it inadequate. The future belongs to portfolios built with genuine diversification, not historical correlation assumptions, but assets with fundamentally independent return drivers. In this new paradigm, life settlements offer exactly what investors need: returns that don’t care what the stock market does tomorrow.
Originally published at https://thebossmagazine.com.
