The internet is buzzing this week about an article written by Tony Robbins touting an “all weather” portfolio developed by famed hedge fund investor Ray Dalio. While Tony is certainly a polarizing figure and life coach, the real meat of this story is in the structure of an investment plan to ride out any storm.
The summation of the strategy is that investors should balance their risks by investing in a diversified base of stocks, bonds, and commodities to ride out anything the market throws your way. By doing so you are able to sidestep concerns of inflation, deflation, growth trends, and other cyclical forces taking an adverse toll on your returns.
He recommends a portfolio of 30% U.S. stocks, 15% intermediate-term treasury bonds, 40% long-term treasury bonds, 7.5% gold, and 7.5% commodities. The overweight nature of bonds is designed to counteract the volatility of stocks and commodities, which he implies is an area that many people take too much risk with. Additionally he recommends that you rebalance the portfolio on a regular (at least annual) basis.
Over a historical 30-year time frame from 1984 to 2013, the portfolio produced stellar results of nearly 10% per year with the worst down year being 2008 when the model dropped just 3.93%. Those are impressive and consistent returns with very little downside volatility.
Ben Carlson of the blog, A Wealth of Common Sense, did an excellent review and back test of the strategy through multiple time frames that is worth a read as well.
For those that are interested in implementing this strategy, take a look a the following 5 ETFs:
Vanguard S&P 500 ETF (VOO)
iShares 7-10 Year Treasury Bond ETF (IEF)
iShares 20+ Year Treasury Bond ETF (TLT)
SPDR Gold Shares ETF (GLD)
iPath Dow Jones-UBS Commodity Index Total Return ETN (DJP)
These are funds with low expenses, established track records, high liquidity, and cover the essential components of the all weather portfolio. However, there are many other alternatives that may make more sense depending on your experience or preference.
