Old 60/40 vs. 2025’s higher-for-longer reality
The old playbook was simple: the Fed cuts, duration rallies, cyclicals rip, and everyone high‑fives their asset allocation. This year, that script is… stickier. If policy rates stay elevated longer, remember, the fed funds target has sat at 5.25%-5.50% since July 2023, then discount rates don’t bail you out as fast, multiples don’t drift higher on autopilot, and financing costs keep nibbling (sometimes chomping) at free cash flow. Cash still pays you real money, 3‑month T‑bills have been north of 5% across most of 2024 and 2025, while parts of the equity market are already priced for a kinder, gentler path. That tension is the portfolio challenge right now.
What does higher‑for‑longer actually mean in the spreadsheets? Higher discount rates shrink the present value of distant cash flows first, which is why long‑duration equities (unprofitable growth, concept stocks) can wobble even when revenues look fine. It also means the line on earnings multiples doesn’t glide up just because inflation cools a bit; as of early September 2025, the S&P 500 forward P/E sits around ~20x (FactSet’s weekly scorecards have hovered near that), which leaves less room for rate‑driven multiple expansion if cuts come later or slower. And on financing costs: the ICE BofA US High Yield OAS has been near cycle tights, roughly 350-400 bps for much of 2024-2025, so spreads aren’t compensating you much for late‑cycle bumps while the base rate is still elevated. That combo is weird: carry looks fine, refinancing windows are open, but the margin for error is thinner than it looks.
Now, does the classic 60/40 still work? Yes, just with different levers than the stretch‑for‑yield era. On the 40, prioritize quality duration you can live with: Treasuries and high‑grade corporates where all‑in yields are attractive without leaning on tight spreads to do the heavy lifting. On the 60, tilt toward quality cash flows, balance‑sheet strength, persistently high gross margins, durable ROIC, over story stocks that need cheap capital or a perfect terminal value. And, I’ll admit I’m repeating myself here, don’t confuse beta with a plan. In 2022 the plain‑vanilla 60/40 had its worst year since 2008 (roughly a mid‑teens drawdown depending on the index), but from 2023 into 2025, the same framework worked again if you swapped out the riskier bond sleeves and dialed back the lottery‑ticket equities.
How to move capital right now without playing hero ball? Stage it. Make paced reallocations over weeks and months, not all‑or‑nothing bets on the next dot plot. For example: shift 10-15% of your bond sleeve toward intermediate Treasuries when the 10‑year drifts into the mid‑4s, then add another clip on backup; rotate 5-10% of equities from expensive, long‑duration names into quality compounders when earnings revisions diverge. And keep a cash bucket on purpose. Yes, it drags in bull stretches, but at 5% yields you’re getting paid to wait for better entry points.
Quick note from the trenches: I’ve seen more money lost waiting for a macro turn than adapting to the one we’re actually in. Back in 2006, well, 2007 if I’m being precise, I watched a desk sit in cash for months waiting for “the” cut. They were early, then late, then just wrong. Don’t do that. Use what the market gives you today, and be ready to adjust when the tape tells you it’s changing. And if I’ve got the exact FactSet multiple off by a decimal this week, the point stands: higher discount rates mean quality matters, sequencing matters, and patience earns a yield again.
What you’ll learn in this section:
- How higher‑for‑longer filters through discount rates, earnings multiples, and financing costs.
- Why a 60/40 still works, but with quality bonds over stretch‑for‑yield credit, and quality equities over story stocks.
- How to pace reallocations with staged moves instead of all‑in bets.
Cash is finally paying, just don’t overpark it
Cash has done the heavy lifting again. In 2023 and 2024, many government money market funds printed 5%+ 7‑day yields (Crane and iMoneyNet data had prime/government funds bouncing between ~4.5% and 5.5% for long stretches in 2023-2024), and assets piled in, ICI reported total U.S. money market fund assets around $6.2 trillion in December 2024. As we sit here in September 2025, policy is still restrictive and 3‑month T‑Bills have hovered roughly around the high‑4s to ~5% for much of the summer (check the Treasury’s Daily Yield Curve for the exact print the day you read this). The point: cash hasn’t been dead weight; it’s been a paycheck.
But. Reinvestment risk is the catch everyone forgets about until the Fed actually moves. If cuts slip into later this year, cash stays competitive a bit longer; if the calendar nudges forward and the curve starts walking yields down, you’ll be rolling into lower coupons before you can say, yep, “what happened to my 5?” That’s a nice way of saying: enjoy the carry, don’t get trapped.
How to hold cash without getting cute:
- Favor T‑Bills and government money market funds for safety and daily liquidity. Bills settle fast, credit risk is negligible, and government MMFs keep you out of commercial paper land. Simple beats clever here.
- Build a 6-18 month ladder with T‑Bills (and FDIC‑insured CDs if you want a little extra pickup). Stagger maturities, say 3, 6, 9, 12, 15, 18 months, so you always have something maturing. If cuts arrive later, you’re still clipping current yields; if cuts show up sooner, only a slice rolls down at the new rate. It’s dull, mechanical, and it works.
- Mind the tax bite. The top federal bracket is 37% in 2025 (NIIT adds 3.8% for high earners), and plenty of states tax interest at 5-10%+; after taxes, a 5.0% taxable yield can feel like ~3.0-3.4% depending on your stack. If you’re in a high bracket, look at high‑quality, short‑duration muni funds. Quick back‑of‑the‑envelope: at a 40.8% combined federal rate (37% + 3.8% NIIT), a 3.4% tax‑exempt muni yield is roughly a 5.7% taxable‑equivalent yield. That’s not an ad for munis, it’s just math, check the credit quality and call structure; short and high‑grade only.
- Keep dry powder intentional. Set a target cash range and stick to it: retirees can think 6-12 months of living expenses; workers usually 3-6 months (bump it if your job is cyclical). Above that, you’re probably overparking and under‑earning on long‑term goals.
One quick tax nuance that gets missed: T‑Bills are taxed at federal but not state/local level. CDs and MMF interest is generally fully taxable by state. That state exemption on Bills can quietly make a 3‑month Bill beat a same‑sticker CD after tax if you live in, say, CA or NY. I learned this the hard way on a family account years ago, looked at the nominal rate, forgot the state hit, won the rate, lost the net. Don’t do that.
And yes, I know, holding more cash felt smart across 2023-2024 with yields over 5% and stocks wobbling on every CPI print. But try to separate two different jobs: cash for liquidity versus cash as a strategic bet. Liquidity cash should be boring and reliable. Strategic cash, your dry powder, should have a re‑deployment plan and a time limit. If you can’t write down when or what gets you to start legging it into bonds/equities, you’re probably just hoarding. Happens to pros too, especially when the carry checks keep clearing.
Bottom line: use T‑Bills and government MMFs for safety, ladder 6-18 months to manage reinvestment risk, run the after‑tax math (check the 2025 brackets and your state), and cap cash at a target range. Cash is finally paying; just don’t mistake a paycheck for a plan.
Bonds that can take a punch: barbell, quality, and a splash of inflation defense
If cuts keep getting pushed out, duration gets whippy and funding stays tight, spread products feel that in their knees. You want fixed income that bends, doesn’t break, and still pays you to wait. I keep coming back to a plain barbell. Not glamorous, but neither is wearing a mouthguard.
- Barbell the rates book. On one side, park in ultra‑short/short Treasuries for carry and agility. Three‑month T‑Bills are around 5.2-5.4% in September 2025 with policy at 5.25%-5.50%. That’s real income and instant optionality if the curve moves. On the other side, own a measured slice of intermediates (think 3-7 years). If cuts slip to later this year or even into early 2026, the belly can still rally when the market starts pulling forward easing. A 5‑year U.S. Treasury near ~4.2% gives you convexity without the nosebleed volatility of 20‑ or 30‑year bonds.
- Stay high quality on credit. Don’t reach into CCC for a 150-200 bp pickup that can disappear in one earnings miss. History’s pretty blunt here: S&P Global recorded the U.S. speculative‑grade default rate around ~1.4% in 2021, rising to roughly ~4.5% in 2023 after the tightening cycle kicked in; most defaulters were in the CCC cohort. The pattern from 2020-2023 in leveraged credit was the same, defaults lag the hikes. Spreads don’t pay you much for late‑cycle downgrade risk right now, so keep the core IG and up‑in‑quality HY if you must.
- TIPS belong on the sheet. Real yields near ~2% on 10‑year TIPS for much of 2024-2025 are attractive by historical standards. That’s real income plus an inflation hedge if services inflation stays sticky. I’d rather own a known real yield than guess the next CPI print, learned that the hard way in 2022 when I stared at breakevens and overthought it.
- Municipals for top tax brackets. If you’re in the 37% bracket (and yes, the 3.8% NIIT still bites), a 3.5% muni is a ~5.9% tax‑equivalent yield. Ladder 5-10 years to balance rate risk with call risk, lots of 2019-2021 callables are still in the system.
- Floating‑rate loans and short‑duration securitized, selectively. With SOFR around ~5.3% this month, senior loans still throw off 8-10% coupons, but covenant quality is thin (covenant‑lite loans exceeded 80% of new issuance in 2023 per LCD). Short ABS/CMBS can help diversify carry, just watch extension risk if spreads gap and prepayments slow.
How I’d sketch it, rough, not gospel: 40-60% in T‑Bills/ultra‑short Treasuries; 20-30% in 3-7y Treasuries; 10-20% high‑grade corporates/agency MBS (keep duration short‑to‑intermediate); 5-15% TIPS depending on your inflation anxiety; and for taxable investors in the top bracket, carve a muni sleeve of 10-30% in a separate account. If you like loans/securitized, cap it and be picky on structure.
One more thing, barbells only work if you actually rebalance. When intermediate yields back up 25-40 bps on a hot labor print and your T‑Bills feel comfy, you have to shift some of that cash to the belly. It’s the part most skip (I’ve skipped it, mea culpa) and it’s where the edge lives if the Fed delays rate cuts longer than markets want.
Playbook if cuts are delayed: keep the barbell tight, quality over yield-chasing, add TIPS on dips in real yields, ladder munis 5-10y, and use floating/short securitized as seasoning, then actually rebalance when the tape gives you a chance.
Equities when money isn’t free: favor quality, cash flow, and pricing power
High rates separate franchises from fads. When policy stays restrictive and rate cuts keep slipping, balance sheets and cash generation do the talking. My bias in this tape: tilt hard toward quality factors, high ROIC, strong free cash flow, low net use, consistent dividend growth, and keep a barbell of durable cash cows plus selective cyclicals that can self-fund. I know, that sounds textbook. It’s also what’s actually holding up when the cost of capital is north of zero.
Quick grounding in numbers. In the 2022 drawdown, the S&P 500 fell −18.1% (total return), while the S&P Energy sector finished +65.7% and Utilities eked out roughly +1% (S&P Dow Jones Indices, 2022). Why bring up 2022 in 2025? Because it was the first real stress test of a higher-rate regime, and it showed that capital discipline and cash returns mattered more than “total addressable market” pitches. Another stat I keep on a sticky note: the Russell 2000 had about 41% of constituents unprofitable in 2023 (FT/Refinitiv), which is why small caps with positive free cash flow and termed-out debt have been the relative winners when credit windows wobble. And for income reliability, the S&P Dividend Aristocrats delivered roughly 8% dividend CAGR from 2014-2024 while running at lower volatility than the broad market (S&P DJI).
Okay, philosophy into practice:
- Tilt toward quality factors: prioritize companies with ROIC above their weighted average cost of capital (WACC). I prefer names running double-digit ROIC, FCF margins >10%, and net use <2x. Dividend growth beats peak yield: a 5-8% dividend CAGR compounds quietly while you sleep.
- Sectors to consider:
- Insurers and asset‑sensitive banks: higher reinvestment yields support net investment income; just watch deposit betas and funding mix. Property & casualty with improving combined ratios can still rerate when catastrophes are manageable.
- Energy and pipelines: capex discipline since 2016 is real. Midstream FCF yields hovered near ~8-10% in 2024 (Alerian), and many operators target 3-5% annual distribution growth with coverage >1.3x. Own the balance-sheet adults.
- Defensive growers with pricing power: staples, select healthcare, and mission‑critical software where retention is 95%+ and price increases stick. If gross margin held or expanded in 2022-2024, that’s a good tell.
- Be picky in rate‑sensitives:
- REITs: favor long weighted-average lease term (WALT 8-14 years for many net-lease names), low 2025-2027 refinancing walls, and fixed-rate debt. Avoid stories that need equity taps to make numbers. I’ll take boring, fully pre-leased industrial over shiny development risk.
- Utilities: constructive regulation, timely rate case cadence, and manageable debt ladders. If capex is front-loaded with floating exposure, pass. If allowed ROEs are holding near 9-10% and financing is locked, that works.
- Treat long‑duration growth carefully: own the profitable leaders with self-funding R&D, not hopes and dreams. In 2022 the NASDAQ-100 fell −32.4% while cash-generating mega-cap platforms protected margins; lesson learned. I’ll pay for high incremental margins and cash conversion >90%, not for revenue that needs eight follow-on rounds.
- Small caps: prioritize companies with term‑ed out maturities (no big bullets in the next 24-36 months), stable or rising FCF, and insider ownership that hates dilution. Avoid serial share issuers. In 2023-2024, the median interest expense step‑up ate a surprising chunk of EBIT for the bottom quartile of the Russell 2000, don’t be that shareholder.
How I’d hold it together right now: keep a barbell. On one end, cash cows, insurers, pipelines, dividend growers with net use <2x. On the other, selective cyclicals with asset sensitivity or operational torque but clean balance sheets. Trim the dream basket. Add to the cash machine basket. When real yields pop 25-40 bps on a hot print and multiples compress, you recycle into the same quality list. It’s a bit boring. Boring tends to pay the bills.
One caveat, this can get too rules-y. Markets are messy, and I’m big on intellectual humility. If I see a high-ROIC company slip because it pulled forward inventory or had a one-off charge, I’ll re-check the thesis rather than auto-sell. And, yeah, I’ll admit I occasionally chase a cyclical too early. The discipline is in size and refinance risk. If that part starts feeling complex… it is. But the checklist is simple: cash in, debt out, pricing power in the middle.
Enthusiasm check. I get genuinely excited about businesses that raise dividends 7-10% a year, retire 2-3% of shares, and still fund growth from operating cash. Not flashy. Just compounding. In a world where money isn’t free, that’s the edge.
Real assets and alts: income now, inflation optionality later
Real assets and alts: income now, inflation optionality later. In a delayed-cuts world, I want assets that actually write checks while we wait, and that don’t blow up if the Fed keeps the policy rate at 5-handles longer than folks hoped. The mix that’s worked since last year has one common thread: cash flows that float, reset, or carry CPI/tariff mechanics. If the data stays sticky, you’re paid to be patient; if growth stumbles, some of these also play defense.
Infrastructure & midstream/MLPs sit near the top for me because a big chunk of revenues are contracted or regulated. U.S. oil pipeline tariffs literally move off an index, FERC’s formula for 2024-2026 is Producer Price Index for Finished Goods plus 0.78%, which builds inflation pass-through into the rate card. Midstream balance sheets have de-levered since 2016, and, look, the income is the headline: the Alerian MLP Index yield has hovered roughly 7-8% in 2025 (check the factsheets; it’s been in that neighborhood most of this year). Two watch-outs: you may get K‑1s instead of a 1099, and if you hold partnerships in IRAs you can wander into UBTI issues. You can avoid K‑1s with C‑corp wrappers and ETFs, but you’ll pay a tax drag at the fund level, there’s no free lunch.
Selective REITs still make sense, but I’d rather own the toll booths than the trophy lobbies. My bias this year: industrial, data infrastructure, and necessity retail. Industrial rent growth cooled from the unsustainable 2021-2022 pace, but mid‑single digit cash SS NOI in 2024 carried into early 2025 at several large caps, with occupancy still ~95% give or take. Data center REITs have been capacity- and power‑constrained, pre‑leasing and pricing power remain healthy because AI compute demand won’t fit into yesterday’s power envelope. Necessity retail (think grocers, pharmacies, value formats) has kept occupancy north of 95% at many platforms. I’m light on highly levered office, refi risk + capex + tenant downsizing is a tough trifecta when 10‑year real yields hang near ~2%.
Private credit was the quiet winner of 2023-2024 because coupons floated up with base rates. With the Fed funds target at 5.25%-5.50% since July 2023, and 3‑month SOFR running about 5.3%-5.4% for most of 2024 into 2025, first‑lien middle‑market loans at SOFR + 500-700 bps printed double‑digit cash yields (11-12% gross wasn’t unusual). That’s the good news. The part that requires grown‑up supervision: underwriting standards. Covenant cushions, EBITDA add‑backs, sector mix, manager selection matters more now that the cycle is long in the tooth. If top‑line softens and interest coverage pinches, recoveries will separate the adults from the cosplayers. I may be oversimplifying, but I prefer managers that walked away from frothy 2021 vintages and kept average LTVs conservative.
Gold is still insurance, not a hero trade. When real yields are high, gold’s carry disadvantage shows up, 2024-2025’s 10‑year TIPS near ~2% has been a headwind at times. And yet, spot made new highs this year (we’ve seen prints north of $2,300/oz in 2025) because growth scares and questions about policy credibility can overwhelm that yield math in bursts. I size it like I size car insurance: 2-5% strategic, not 15% because you saw a scary chart on social media.
Commodities give you inflation beta, but they can chew through risk budget fast. Roll yield, collateral returns, curve shape, this isn’t a set‑it‑forget‑it S&P 500 clone. If you’re not living in the futures screens, consider rules‑based baskets (BCOM, GSCI variants) and cap the sleeve. I tend to weight toward energy and industrial metals when supply discipline is visible and inventories are tight; spread it out so a single supply shock doesn’t hijack your month.
What actually ties this together? Cash now, optionality later, contracted, tariffed, or floating cash flows that don’t require the Fed to cut on your timetable.
- Midstream/MLPs: contracted volumes, FERC inflation index (PPI‑FG + 0.78% for 2024-2026), ~7-8% cash yields in 2025; mind K‑1s/UBTI.
- REITs: favor industrial/data infra/necessity retail; avoid highly levered office until refinancing clears and capex burn is under control.
- Private credit: SOFR lifted coupons in 2023-2024; with SOFR ~5.3% into 2025, double‑digit cash yields persist, manager discipline is the whole ballgame.
- Gold: behaves when growth wobbles or policy credibility gets questioned; negative carry vs real rates is real, own it as insurance.
- Commodities: risk‑budget it; use diversified, rules‑based sleeves if you’re not a futures pro.
I know, this sounds boring again. Boring and paid is fine while we wait for the rate story to resolve. And if that takes longer than consensus thinks, well, these checks keep clearing.
Global and currency moves: a strong dollar cuts both ways
When the Fed keeps short rates pinned high, the dollar tends to stay firm. We’re living that again in 2025: the fed funds target is still 5.25-5.50%, while the ECB deposit rate is around the low‑3s and the BOJ policy rate is near 0-0.25%. That rate gap shows up in FX carry. For a U.S. investor hedging currency risk, the annualized carry from hedging JPY back to USD is roughly 4.5-5.0% right now, EUR is closer to 1.5-2.0%, and GBP about ~1%, ballpark ranges because basis and tenor matter. The point is simple: when the dollar is strong and U.S. short rates are higher, hedging developed‑market currency often reduces volatility and can even add a little return, which isn’t a bad combo while we wait for the rate story to break.
There’s a flip side. A firm dollar tightens financial conditions abroad, and it especially pinches emerging markets that rely on USD funding. We’ve seen this movie: when the trade‑weighted dollar rallies, EM countries with weak current accounts and heavy short‑term external debt get squeezed. The IMF has written on this for years; dollar invoicing still covers a large chunk of global trade (roughly half by some estimates), so FX pass‑through and funding stress can hit growth. Not all EMs are the same though, big caveat. Economies with current‑account surpluses, solid FX reserves, and local‑currency funding bases tend to ride out a strong dollar much cleaner than those leaning on offshore dollar lines.
How I’d translate that into positioning, keeping it practical:
- Hedge a portion of developed‑market equity FX when the dollar is strong. A 50-75% hedge ratio on Europe/Japan can cut FX noise without turning the portfolio into a full macro bet. Historically (2000-2024), currency has been a material driver of EAFE volatility; simple hedges have reduced annualized volatility by several percentage points in multiple cycles. You don’t need to overengineer this, just be consistent by region and tenor.
- Favor EMs with current‑account strength and lower external debt. Think net external creditor or near‑balance countries with good reserve cover, Korea, Taiwan are the textbook examples; Indonesia’s improved reserve metrics help; Mexico’s near‑shoring tailwind offsets a modest deficit. Be cautious on markets with large USD funding needs and shallow local curves. Funding windows can shut faster than people expect, seen it too many times.
- Quality travels: international dividend growers with net cash balance sheets. Look for companies with positive free cash flow, ROIC above WACC by a few points, and net cash or very low net use. If the currency swings, durable cash payers usually hold up; if the dollar softens later this year, you also keep the upside.
- For bonds, keep your defense clean: high‑quality global sovereigns and investment‑grade credits with explicit USD hedges if the point is ballast. With USD short rates still elevated, the hedge carry is not your enemy. Don’t buy foreign duration for safety and leave it unhedged, that’s just taking a macro FX bet in disguise.
One more messy, real‑world angle. The DXY has chopped between the high‑90s and low‑100s for long stretches, and while I could swear it touched 114 back in 2022 during the inflation panic (it did), the exact print isn’t the point, the behavior is. Dollar cycles move in multi‑year waves tied to growth and policy differentials. If the Fed keeps rates higher for longer into year‑end and U.S. growth outpaces Europe/Japan, the path of least resistance is a firm dollar; if recession risk picks up or the Fed signals cuts, the dollar can slip fast. So hedge the stuff you want to hold through the noise, and leave a little unhedged optionality where you actually want the FX exposure.
Quick guardrails I keep taped to the monitor, imperfect but useful: unhedged foreign equities when the dollar is ripping tend to lag their local‑currency returns by several percentage points; partial hedging can narrow that gap. EM screens should start with current account/GDP and external debt/exports, not the P/E column. And for the bond sleeve that’s supposed to be your shock absorber, use explicit FX hedges, mix in developed‑market sovereigns and IG where the policy backdrop is stable. Boring, yes. Effective, also yes.
Your 30‑day rate audit: tighten the plan and move on
Markets don’t send invitations; they just move. If the Fed nudges cuts into later this year, you want to earn carry now without blowing up if the landing gets bumpy. Quick context: the fed funds target is still 5.25%-5.50% (unchanged since July 2023), 3‑month T‑bills sit around 5.3% in September 2025, and money market fund assets were roughly $6.2 trillion in June 2025 per ICI, cash is paying, and there’s a lot of it. The 2‑year Treasury is hovering in the mid‑4s, the 10‑year nearer the low‑4s; the curve isn’t screaming recession, but it’s not exactly whistling showtunes either.
I keep a grubby checklist on my desk, steal it, scribble on it, make it yours:
- Rebuild your cash policy: define your target (e.g., 6-9 months expenses for households; 1-2% of AUM for opportunistic buying in portfolios). Pick vehicles, T‑bills, FDIC/NCUA sweep accounts, or institutional MMFs with weighted‑average maturity under 60 days. Write the tax angle right next to it: state tax exemption on Treasuries matters, and MMF 1099‑INT adds up with yields around 5%, plan for it.
- Map debt maturities (portfolio and household). List corporate bonds, loans, mortgages, HELOCs. Refi risk is real: leveraged finance still has a big maturity wall, over $1 trillion of U.S. high‑yield bonds and leveraged loans come due through 2027 (S&P/LCD estimates from 2024 carry into this cycle). If you can extend at reasonable spreads, do it; if not, build a payoff plan.
- Shift fixed income toward short/intermediate Treasuries, high‑quality munis, and a measured TIPS sleeve. With breakeven inflation near the mid‑2s this year, a 10-20% TIPS allocation inside the bond bucket gives you inflation ballast without overcommitting. Keep the average duration in the 3-5 year zone unless your liability profile says otherwise.
- Rebalance equities toward quality, dividend growth, and pricing power. Cash‑burn stories looked fun in 2021; funding costs aren’t free now. I’m okay trimming the highest‑beta, negative‑FCF names and adding to firms that can pass through costs and don’t need capital every quarter.
- Consider tax moves: harvest losses where they actually exist (there are pockets, especially in long‑duration growth that lagged earlier this year). Tax‑locate, put taxable bonds/TIPS in IRAs/401(k)s when possible, keep qualified dividend/long‑term gains assets in taxable. And yes, review your 2025 estimated taxes on interest income; 5% cash throws off real dollars, underpayment penalties are annoying.
- Retirees: hold a 1-2 year cash/bond buffer for withdrawals, T‑bills, short IG, or high‑quality short muni ladders. If portfolio drawdowns breach your guardrails (say, down 12-15% vs plan), ratchet the withdrawal rate down 0.25-0.50% until the cushion rebuilds. Not forever; just until the math cooperates.
One more practical note from last week’s client call, yes, the one with the spreadsheet that had 14 tabs. If cuts slip to November/December, the carry you earn between now and year‑end is not trivial: at a 5.3% T‑bill, three months of cash is ≈1.3% annualized on that slice. That’s real, and it compounds.
Challenge for the next 30 days: open your statements and label every holding in plain English, “earns now,” “hedges risk,” or “needs a reason to stay.” If it doesn’t fit, fix it. Upgrade quality, shorten what needs shortening, and be honest about why you own each line. You’ll find a few positions you meant to sell “after the next rally”, we all do. Also, check the stuff we didn’t even talk about yet: insurance deductibles and cash thresholds for emergencies; they interact with your risk budget more than people admit.
Final thought, none of this is absolute. If the data cracks, we’ll adapt. But the current rate math is generous enough to pay you for being patient, and diversified enough not to hurt if the landing gets choppy. Write the plan; stick it above your screen; move on.
Frequently Asked Questions
Q: How do I adjust a 60/40 portfolio if the Fed delays cuts again?
A: Keep the 60/40, tweak the guts. On the 40, favor Treasuries and high‑grade corporates with 3-7 year duration; build a 3-12 month T‑bill ladder for liquidity. Avoid leaning on tight credit spreads to “do the work.” On the 60, tilt to quality, cash‑generative companies and profitable growth. Rebalance quarterly. And keep dry powder, opportunities show up when others get impatient.
Q: What’s the difference between sitting in cash, 3‑month T‑bills, or intermediate Treasuries right now?
A: Cash and 3‑month T‑bills are paying north of 5% this year, with near‑zero price volatility and daily/short‑term liquidity, great for emergency funds and near‑term goals. Intermediate Treasuries (say 5-7 years) pay a bit less today but give you upside if yields fall later this year or in 2026. Trade‑off: T‑bills = stable income; intermediates = rate‑cut convexity. Practical mix: a T‑bill ladder plus a measured allocation to 5-7 year Treasuries.
Q: Is it better to reach for high yield now or stick with investment‑grade?
A: Short answer: stick with quality as your core, use high yield sparingly. Here’s why. The fed funds rate has sat at 5.25%-5.50% since July 2023, so the base rate is already doing heavy lifting for returns. Meanwhile, the ICE BofA US High Yield OAS has hovered roughly 350-400 bps for much of 2024-2025, near cycle tights. That means you aren’t getting paid much extra spread for late‑cycle bumps, while refinancing costs are still elevated. In plain English: carry looks fine, but the margin for error is thinner than it looks. Actionable setup:
- Core: 60-80% of fixed income in Treasuries/AGG‑quality, duration 3-7 years.
- Satellite: 10-20% in BBB/short IG corporates for incremental yield without big spread risk.
- Opportunistic: 0-10% in HY via a diversified fund, biased to higher‑quality BBs and shorter duration. Avoid single‑name CCC fishing.
- Risk controls: keep HY position sized so a 300-500 bps spread widening doesn’t wreck your year. Reinvest coupons, and use a rules‑based rebalance. One more thing, if spreads widen and the base rate is still high, that’s when you upsize HY. Not when it’s tight. I’ve learned that the hard way, twice.
Q: Should I worry about equity valuations at ~20x forward P/E with rates higher for longer?
A: A bit, yes, but don’t panic‑sell. As of early September 2025, the S&P 500 sits around ~20x forward earnings, which leaves less room for multiple expansion if rate cuts show up later and slower. Practical tweaks: overweight quality, high ROIC, clean balance sheets, free‑cash‑flow yield you can actually measure. Underweight long‑duration, unprofitable growth. Dollar‑cost average, rebalance into weakness, and keep a T‑bill sleeve paying ~5% so you’re not forced to chase. Boring tends to win here.
@article{best-investing-strategy-if-the-fed-delays-rate-cuts-in-2025,
title = {Best Investing Strategy if the Fed Delays Rate Cuts in 2025},
author = {Beeri Sparks},
year = {2025},
journal = {Bankpointe},
url = {https://bankpointe.com/articles/investing-if-fed-delays-cuts/}
} 