5 reasons your ‘safe money’ may not be as safe as you think

Investment-grade bonds, CDs and money-market funds typically pay around 3 to 5% in a normal year. Subtract inflation and the careful saver is often left with a real return near zero, and in some years below it.

Nothing prints as a loss on the statement. The balance goes up. But the groceries, property taxes and medical bills it is meant to cover go up at least as fast, and across a retirement that may run thirty years, that leak compounds into a real hole.

The 60/40 portfolio's real engine was never the stocks. It was the expectation that stocks and high-grade bonds would move in opposite directions at the worst moments, so the bonds would cushion the fall.

From the late 1990s onward they mostly did. That was a feature of one regime, an era of falling and then very low interest rates. It was never guaranteed to hold.

In 2022 the trouble came from sharply rising interest rates, and rising rates hit bonds hardest. The broad U.S. high-grade bond benchmark fell roughly 13%, its worst calendar year on record. The S&P 500 fell about 18 to 19%. The classic 60/40 lost something like 16 to 17%.

A cushion that depends on two assets pulling apart at the right moment is a hope. A defense with a trigger is a mechanism.

That is the idea behind OmniFunds, algorithmic software from Nirvana Systems. It reads the market every day, rotating out of weakening stocks and ETFs and into the strongest. When its signals deteriorate, it rotates into defensive stocks, inverse ETFs that can rise when the market falls, and ultimately cash. That does not depend on the stock-bond correlation holding up. In one recent episode it moved fully to cash two days before a sharp drawdown.