The Holy Grail Of Investing?
An Investment Strategy For All Markets...
The Investment Strategy For All Markets
In the modern investment world, consumers have many different ways to put their capital to work.
Long gone are the days of simply splitting capital between stocks and bonds.
Nowadays, investors also have the choice to invest in many other arenas such as managed futures, commodities, real estate, precious metals and more.
Personally I've spent more than 20 years searching, testing, and trying as many different types of trading and investing strategies and methods I could find - searching for the Holy Grail of Investing.
And while much of the time I came up empty handed - along the way I HAVE found a handful of trading and investing methods that towered above everything else and that were in that 'realm of greatness'...
...one of which is a passive, hands off, set and forget strategy called 'The All Weather Portfolio' by Ray Dalio.
Who Is Ray Dalio?
Ray Dalio is one of the most successful investors of the modern age and founder of the world's largest hedge fund.
In 1971 he founded Bridgewater Associates.
Since its founding, Bridgewater has grown to become the largest hedge fund on the planet, currently managing some $140 billion of institutional money from pensions, endowments, central banks, foreign governments and others.
His decades of market experience led him to come up with an 'All Weather Portfolio' - a portfolio that is built to perform in any and all market situations - which was eventually published and popularized in a book by Tony Robbins called: "MONEY Master The Game."
In Section 5 of that book, Ray Dalio reveals the specific asset allocation mix that makes up his 'All Weather Portfolio'...
What's In The All Weather Portfolio?
The specific asset allocation mix in Ray Dalio's 'All Weather Portfolio' looks like this:
- 30% Stocks
- 40% Long Term Bonds
- 15% Intermediate Term Bonds
- 7.5% Gold
- 7.5% Commodities
In Section 5 of the book "Money Master The Game" Dalio explains why he chose those particular assets in those specific percentages - which has to do with his theory on 'Economic Seasons'.
According to Dalio there are four things that affect the value of assets - which are:
1. INFLATION: The increase in prices for goods and service - and the drop in purchasing value of a currency.
2. DEFLATION: The decrease in prices for goods and services.
3. RISING ECONOMIC GROWTH: This is when the economy flourishes and grows.
4. DECLINING ECONOMIC GROWTH: This is when the economy diminishes and shrinks.
Dalio then goes on to say that based on those 4 elements, we can expect 4 different 'Seasons' that the economy can go through - which are:
1. Higher than expected inflation (rising prices).
2. Lower than expected inflation (deflation).
3. Higher than expected economic growth.
4. Lower than expected economic growth.
So - to build his 'All Weather Portfolio' - Dalio put together a portfolio of different assets that have no correlation with each other but that perform well when each of those different seasons occur - creating a very simple yet well diversified portfolio that can 'weather' both good times and bad - and that can generate solid returns in all types of markets.
How Has The All Weather Portfolio Performed In The Past?
In his book, Robbins had the All Weather Portfolio backtested and wrote that "The strategy has produced just under 10% annually and made money more than 85% of the time in the last 30 years (between 1984 and 2013)!"
He also found that if you had invested in the All Weather Portfolio from 1984 through 2013 - you would have made money just over 86% of the time. The average loss for the All Weather Portfolio was just under 2%.
In addition, he also found that when backtested during the Great Depression, the All Weather Portfolio would have only 20.5% vs. the huge S&P loss of 64.4%.
And - in the years when the S&P had some of it worse drops ever (1973 and 2002) the All Weather Portfolio actually made a profit.
But The BIGGEST Benefit Of The All Weather Portfolio Is...
While the All Weather Portfolio's ability to generate solid and consistent returns in all different types of market conditions is certainly impressive - perhaps its BIGGEST benefit is its ability to do so while maintaining very low portfolio losses and drawdowns - which allows investors LOW STRESS, PEACE OF MIND, confidence, security, and the ability to sleep well at night.
Money managers love to talk about how the general stock market return over the past several decades have been in the range of 8% to 10% per year...
But what they fail to tell you is that throughout that time the general stock market has had periods of HUGE drawdowns and years with extremely large losses.
On the other hand, the All Weather Portfolio has been able to generate very comparable returns to the general stock market - BUT WITHOUT huge drawdowns AND WITHOUT years with large losses.
For example, between the years of 2007 and 2020 the worst yearly loss suffered by the S&P was a loss of -36.81%...
...while the worst yearly loss for the All Weather Portfolio was just -2.98%.
During that same time period, the worst drawdown experienced by the S&P was a drawdown of -50.80%...
...while the worst drawdown experienced by the All Weather Portfolio was a drawdown of just -12.08%.
How To Build An All Weather Portfolio?
Building your own All Weather Portfolio can be done by simply finding ETF's and/or securities that match Ray Dalio's core model and allocating them in the correct percentage amounts.
Below is an example of ETF's / Securities I used myself to build an All Weather Portfolio (and of course, you know the drill: this is not investment advice, this is for education and illustrative purposes only, always check with a professional investment advisor before ever investing in the market...)
Here is how I recently constructed my own All Weather Portfolio...
30% SPDR S&P 500 ETF Trust (SPY).
40% iShares 20+ Year Treasury ETF (TLT).
15% iShares 7 - 10 Year Treasury ETF (IEF)
7.5% SPDR Gold Shares ETF (GLD)
7.5% PowerShares DB Commodity Index Tracking Fund (DBC)
Once the portfolio has been set up, it may require periodic rebalancing in order to maintain the desired allocations.
Portfolio rebalancing is not as complicated as it may sound and can be done in a matter of minutes with a major broker.
In order to rebalance the portfolio, you need to calculate how much each allocation now takes up of the total portfolio.
For example, if stocks had a great year and your portfolio is now 50% in stocks, you will need to either add capital to the other allocations or sell shares to reduce the stock portion to the desired 30%.
Each year, you simply run the math and make sure each asset class makes up the desired portion:
40% Long-Term Bonds
15% Intermediate-Term Bonds
The All Weather Portfolio is designed to minimize risk while providing stable, above average returns.
The portfolio, while it does much of the work, will not do all of it, however.
It is up to each investor to add more capital on a regular basis and to rebalance their holdings on an annual basis.
Keeping some capital set aside to invest during the more challenging times can also pay off big.
Done consistently over time, this can add significant amounts to net returns while also smoothing portfolio volatility.
The All Weather Portfolio can be an excellent tool for assisting you in achieving your financial goals.
To the portfolio, however, you must add discipline, consistency and more funds in order to really maximize what the portfolio may provide.
Doing so over a long period of time can have a dramatic impact on the value of your portfolio.
While the All Weather Portfolio can act as a simple passive 'set and forget' investment strategy when just used in the way outlined above - it's also possible to 'super charge' the strategy by using a number of specific 'option income' trading strategy techniques.
Here's A Video That Shows How You Can
Backtest The All Weather Portfolio For Free...