The Modern Wealth Formula: A Smarter Way to Build Wealth in Australia

Last reviewed: June 2026

The 60/40 portfolio had a good run. Decades, actually. But the idea that you can split your money between shares and bonds, rebalance once a year and retire comfortably? That world ended. And if 2022 didn't convince you, we reckon nothing will. Both sides of the portfolio fell in tandem. Bonds were supposed to be the shock absorber. Instead they were just another source of pain.

We built the Modern Wealth Formula because we got tired of watching good investors cling to a framework that stopped working. It's not a product. It's a structure, a way of thinking about your money that separates the jobs your portfolio actually needs to do into two distinct pools. One generates income. The other compounds growth. They don't interfere with each other. And when things go wrong in markets, which they will, your income pool means you never have to raid the growth side at the worst possible time.

You can download the full Modern Wealth Formula PDF here. But in this piece we'll walk through the whole thing, what it is, how the numbers actually stack up, and which version might fit your situation.

Why did the 60/40 portfolio stop working?

The 60/40 was built for a world of falling interest rates, shorter retirements, and bonds that reliably zigged when shares zagged. For roughly 40 years it delivered. But the structural conditions that made it work have reversed.

Interest rates went from 15% to near zero over four decades. That's a one-way tailwind for bond prices that can't repeat. People are living longer, which means retirement portfolios need to last 25-30 years instead of 15. And the correlation between shares and bonds, the whole foundation of the 60/40 idea, has flipped. When inflation runs hot, both asset classes fall together. We saw it in real time during 2022.

The old model also has a withdrawal problem. If you're drawing 4-5% a year from a portfolio that's flat or down, you're selling assets at depressed prices to fund living costs. That's a permanent destruction of capital that no subsequent recovery fully repairs. The maths is brutal and its a mistake that compounds against you.

We wrote about this in detail in Australia's Lazy Investment Strategy Is Finally Dead. The short version: the 60/40 isn't broken because of one bad year. It's broken because the conditions that made it work have structurally changed.

What are the two pools in the Modern Wealth Formula?

The core idea is simple. Your money has two jobs. Generating income and compounding growth. Instead of blending them into one portfolio and hoping for the best, you separate them. Each pool uses the best available tool for its specific job.

Pool One: Income and Capital Preservation

Pool One uses Fixed Coupon Notes (FCNs) linked to baskets of ASX blue-chip shares. These pay a fixed coupon of 10-14% per annum. The coupon is locked in at issue, it doesn't fluctuate with markets. Your capital is protected provided no stock in the underlying basket falls below a 60% barrier at maturity.

Across the last 20 MPC Markets FCN deals, the average yield has been 12.7% p.a. That's not a hypothetical. That's the actual average coupon investors received.

Pool One's job is straightforward. Deliver reliable, structural income so you never need to touch Pool Two during a downturn. Think of it as the paycheque your portfolio generates regardless of what the market is doing on any given Tuesday.

Pool Two: Growth and Leverage

Pool Two is where the compounding happens. Enhanced Growth products deliver up to 7x gross index exposure per dollar invested. No margin calls. No monthly repayments. Your maximum loss is limited to your initial outlay, and there's only one CGT event at maturity.

If that sounds like leverage, it is. But it's structured leverage with defined downside, which makes it fundamentally different from margin lending or CFDs where losses can exceed your investment. Enhanced Growth gives you the upside participation of leverage without the overnight margin call that wipes people out.

How does structured leverage compare to property leverage?

Australians understand leverage instinctively. They just don't call it that. Every property investor who puts down a 20% deposit and borrows the rest is running 5x leverage. A $200,000 deposit controls a $1,000,000 asset. Nobody panics about that. In fact, we celebrate it.

Enhanced Growth applies the same principle to equities. Instead of a bank lending you money against bricks and mortar, you're using a structured product to gain leveraged exposure to the S&P 500 or ASX 200. For example, $15,750 invested in Enhanced Growth can control $100,000 of S&P 500 exposure.

But here's where it gets better than property. With a house, if values fall 20%, the bank can call your loan. With Enhanced Growth, there are no margin calls. Your maximum loss is capped at what you put in. You know your worst case scenario on day one, and that number never changes.

Feature	Property (5x Leverage)	Enhanced Growth (up to 7x)
Deposit / Investment	$200,000	$15,750
Asset Exposure	$1,000,000	$100,000
Monthly Repayments	Yes (mortgage)	None
Margin Calls	Possible	None
Maximum Loss	Potentially unlimited	Initial investment only
Liquidity	Months to sell	Secondary market available
CGT Events	On sale	One event at maturity

We're not saying property is bad. We're saying the leverage principle that built most Australian wealth already exists in a more flexible, more capital-efficient, more liquid form. Most people just haven't been shown it yet.

Where do structured products sit globally, and why is Australia behind?

Globally, structured products hit $1 trillion in issuance during 2025. The US allocates around 6% of portfolios to structured investments. Europe is above 10%. Australia? Below 1%.

That's not because structured products are risky or exotic. It's because Australian financial advice has been dominated by platform-based models that earn fees on funds under management. Structured products don't sit neatly on those platforms, so advisers haven't been incentivised to recommend them. The products aren't new. They've just been invisible here.

We think that gap is an opportunity. As more Australian investors learn what's been available overseas for decades, allocation to structured investments will grow. We've already seen it accelerate over the past two years.

Which profile fits you: Builder, Consolidator, or Protector?

The Modern Wealth Formula isn't one-size-fits-all. We designed three profiles because a 35-year-old in accumulation mode has completely different needs to a 62-year-old approaching retirement. The formula is the same. The dial between Pool One and Pool Two is what changes.

Wealth Builder is for investors still in growth mode. You're earning well, you don't need income from your portfolio right now, and your time horizon is long. The allocation leans heavily toward Pool Two, maybe 70% growth and 30% income. You reinvest your FCN coupons back into Enhanced Growth to maximise compounding. This is where the real wealth creation happens over 10-15 years.

Wealth Consolidator sits in the middle. You've built a decent base, you're earning good money but starting to think about what comes next. A roughly equal split between Pool One and Pool Two means your income covers your lifestyle costs while the growth side keeps compounding. You're not drawing down capital. The portfolio effectively pays for itself.

Wealth Protector is income-first. You're in or near retirement, you need reliable cash flow, and you can't afford to be caught selling assets into a falling market. Pool One dominates at around 70%, with a smaller Pool Two allocation providing some growth participation without putting the income stream at risk.

None of these are rigid. They're starting points. Your actual split depends on your circumstances, and it should shift over time as your needs change.

How does the Modern Wealth Formula actually perform compared to an ETF?

Theory is nice. Numbers are better. Here's what happens to $100,000 over three years across different market scenarios, comparing a standard index ETF to the Modern Wealth Formula.

Market Scenario	Index Return	ETF Result	Modern Wealth Formula
Bad Year	-3%	-$8,733	+$1,110
Strong Year	+10%	+$22,504	+$43,976
Great Year	+15%+	+$37,000	+$100,325 (after tax)

Look at the bad year column. That's the one that matters most. The ETF investor is down almost $9,000. The Modern Wealth Formula investor is up $1,110. That's not magic, its the income from Pool One doing exactly what it was designed to do, offsetting the temporary drawdown in Pool Two.

And in the strong year, the formula doesn't just match the ETF. It nearly doubles it. That's the leveraged exposure in Pool Two earning its keep.

The great year number, over $100,000 in after-tax returns on a $100,000 investment, looks too good to be true. But when you remember that Pool Two can deliver up to 7x index exposure, a 15%+ year on the index translates into substantially larger returns on the Enhanced Growth component. The maths checks out.

What about the risks?

We'd be doing you a disservice if we pretended this was risk-free. It isn't. Here's what you need to understand.

Pool One risk: If a stock in your FCN basket falls below the 60% barrier at maturity, you can receive shares instead of cash. That means you're exposed to the worst-performing stock in the basket. The 60% barrier provides a substantial buffer, no stock needs to stay flat, it just can't fall more than 40% and stay there at maturity. But it's not a guarantee.

Pool Two risk: Enhanced Growth amplifies gains, but it also amplifies losses up to the point of your initial investment. If the index falls significantly over the term, you could lose all of the capital deployed in Pool Two. That's why Pool One exists. The income stream from FCNs means you're never forced to crystallise a loss in Pool Two to pay the bills.

Counterparty risk: Both FCNs and Enhanced Growth are issued by major global investment banks. Your exposure includes the credit risk of that issuer. In practice, these are institutions like Morgan Stanley, Goldman Sachs, and Barclays, but it's a risk that exists and you should know about it.

Liquidity: These products have fixed terms, typically 2-5 years. Secondary markets exist but aren't guaranteed. This is money you should plan to leave in place for the full term.

The formula manages risk by separation. Pool One's income keeps you solvent. Pool Two's defined downside keeps losses bounded. Together, they're designed so that the worst realistic outcome is still far better than the 60/40 portfolio's worst realistic outcome. But "better" doesn't mean "zero risk."

How should you actually get started?

If you've read this far and the logic makes sense, the next step is simple. Work out which profile fits you, Wealth Builder, Wealth Consolidator, or Wealth Protector. That determines your starting allocation between Pool One and Pool Two.

Then talk to us. Seriously, this isn't a DIY product you can buy on CommSec. Structured investments require guidance on which FCN series to enter, what index exposure makes sense for your situation, and how the pieces fit with whatever else you already own. We run portfolio reviews specifically for this, where we map your existing holdings against the Modern Wealth Formula and show you what the transition looks like.

One last thing. The 60/40 portfolio worked for your parents. Maybe even for the first half of your investing life. But the world that made it work has gone. The Modern Wealth Formula is what we built to replace it. Two pools, clear jobs, structural income, leveraged growth, and no more hoping that bonds will save you when everything falls apart.

We reckon it's the most sensible framework for building and protecting wealth in Australia right now. Though of course, we would say that.

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