Annualized 26%, surpassing the best return since 1933! How to copy the homework of the Bank of America's "Worry-Free Pillow" investment portfolio that crushes the 60/40 strategy?

Chief Investment Strategist of Bank of America, Michael Hartnett, pointed out in the latest issue of the Flow Show Weekly Report that since 2026, the annualized return of a portfolio equally allocated in stocks, bonds, cash, and commodities (25/25/25/25) has reached 26%. If this trend continues, the performance for the whole year will set a record as the best since 1933, becoming the third largest year of excess returns compared to the traditional 60/40 stock-bond combination in nearly a hundred years. Hartnett calls it the "secure and worry-free" portfolio, meaning that investors do not need to worry about the drastic fluctuations of a single asset when holding this type of portfolio. Core momentum of the rise: commodities Since the beginning of 2026, there have been extreme situations in the global capital markets where stocks, bonds, and commodities have risen and fallen together, and the traditional hedging logic between asset classes has frequently failed. In such an environment, a structurally simple asset allocation portfolio - allocating 25% each to stocks, bonds, cash, and commodities - is delivering impressive results. For a strategy aimed at "anti-chasing the market," this level of return is eye-catching. It does not focus on any single popular asset but evenly allocates funds to growth stocks, defensive fixed income, high liquidity cash, and hard assets - and so far in 2026, all four areas have contributed positive returns. But the real key variable is commodities, which has brought strong momentum to the portfolio that the traditional 60/40 combination lacks. The S&P Goldman Sachs Commodity Index has risen by 33% so far this year. The price of US WTI crude oil has risen by over 60% this year, precious metals continue the epic bull market from 2025, copper prices have repeatedly hit historical highs, and Hartnett pointed out at the beginning of the year that commodities are the engine of excess returns for this portfolio, injecting it with the strong momentum that traditional asset allocations lack. From a historical comparison, Hartnett's charts show that only in 1946 and 1973 were there two times when the excess performance of the 25/25/25/25 combination compared to 60/40 was greater than the current situation - those years corresponded to the post-World War II inflation surge and the oil crisis, both driven by commodities. This historical coincidence itself hints at the deep characteristics of the current situation. Hartnett has been promoting this framework since the early 2020s. In a report on January 29 this year, he explicitly pointed out that the market environment of the 2020s is more conducive to a four-way split portfolio than the traditional 60/40 stock-bond allocation. The core logic behind this is that the post-pandemic era's high interest rates and rising inflation pressures are systematically weakening the hedging function of bonds - the negative correlation between stocks and bonds, the most sacred assumption in asset allocation over the past forty years, is no longer reliable. The market volatility since 2026 has precisely confirmed this point. At the end of January and beginning of February, due to the disruption caused by the nomination of the new chairman of the Federal Reserve and inflation data, the market experienced extreme situations where the US dollar strengthened on its own and stocks and bonds fell together; in the middle and late March, the sudden escalation of the situation in the Middle East pushed oil prices up by over 40% in a single month, leading to a situation where stocks and bonds fell together again. Under the impact of total supply, the traditional negative correlation between stocks and bonds has been reversed, and the hedging effect of safe-haven assets has been greatly diminished. When traditional hedging methods fail, the advantage of a portfolio diversified across low-correlated asset categories naturally shines. Ironically, despite commodities having had a super bull market in 2025 - with gold in London rising by over 60% for the whole year, silver soaring by 102%, and copper prices hitting record highs - many institutional investors still have a low allocation to commodities. Hartnett warned that if the strong returns start to attract more investors to move towards commodities and other hard assets, then the investment portfolio, which has reached its highest return level in nearly a hundred years, may have even greater upward momentum. In the context of deglobalization, industrial chain restructuring, resource nationalism, and geopolitical realignments, he further pointed out that investors need to address the low allocation of commodities and substantially increase their holdings of natural resource assets. From "permanent portfolio" to contemporary replication: How can investors build a simple 25/25/25/25 investment portfolio? The idea of this strategy can be traced back to Harry Browne's proposal of the "permanent investment portfolio" several decades ago, which also involved an equal weight allocation of 25% in stocks, long-term US government bonds, cash, and gold. Browne's intention was to build a defensive system that acknowledges its inability to predict the market but can withstand any economic situation - benefiting from stocks during economic prosperity, using bonds and cash as buffers during recession, and relying on gold and commodities as the most direct protection during inflation. Hartnett's version replaces gold with a more diversified basket of commodities to adapt to the revaluation of resource products in the context of global industrial chain reshaping. In terms of practical operation, investors can roughly replicate this framework through broad-based stock ETFs, long-term government bond ETFs, money market funds, and diversified commodity ETFs, but they cannot use the exact underlying tools as in the Bank of America's research. The following examples list some of the larger and more liquid ETFs, which roughly correspond to the categories of stocks, bonds, cash, and commodities in the investment portfolio. These examples are not investment recommendations and do not replicate the model used by Bank of America. Hartnett admitted that this portfolio solution may not be suitable for every asset allocator; but he also pointed out that in the context of logistics supply chain restructuring, the rise of resource nationalism, and the realignment of geopolitical patterns in the new era of "deglobalization," investors must address their underallocation of commodities and start increasing their holdings of natural resource assets. On a tactical level, in the latest report, Hartnett summarized his trading ideas for the second quarter with the "Five Cs": steepening yield curve trading, Chinese assets, consumer cyclical stocks, semiconductor stocks, and commodities. From a geopolitical perspective, Hartnett predicts that in order to win the competition in the field of artificial intelligence (AI), countries will inevitably seek to monopolize chips, rare earths, minerals, and oil resources; based on this, he speculates that the US government will not only provide assistance to strategic domestic companies but will also support allies who adopt similar strategies (such as the UAE). Conclusion By juxtaposing the extreme movements of the 25/25/25/25 portfolio with the Philadelphia Semiconductor Index, Hartnett attempts to outline a larger narrative logic: in the context of major power competition for AI dominance, monopolizing chips, rare earths, minerals, and oil has become an urgent geopolitical task; and the US government is likely to provide assistance to domestic strategic companies and support allies accordingly in exchange for continued oil and chip supplies. In this context, companies like SpaceX, Anthropic, and OpenAI aiming for the "largest scale IPO in human history" are likely to debut this year, and the tech stock bubble is expected to reignite. It should be noted that whether the 25/25/25/25 portfolio can "maintain" a 26% annualized return is still facing a practical test: commodities need to maintain or even expand their current 24% increase, and the S&P 500 index needs to accelerate its increase from the 4% rise so far this year - in an environment where geopolitical conflicts have not completely subsided and the Federal Reserve's interest rate policy remains uncertain, this premise is not a given. Although this strategy may not be applicable to all asset allocators, the strong performance since 2026 sends a clear signal: in a macroeconomic cycle where traditional correlations are becoming ineffective, a diversified allocation framework that is balanced, low-correlated, and includes hard assets is regaining the attention it deserves. For long-term oriented investors, the significance of the moment may not lie in replicating a model, but in reevaluating the core logic of their portfolio construction and the role that commodities should play in it.