All Seasons Strategy

[gcgang]

What type of investment portfolio would one need to have to be absolutely certain that it would perform well in good times and in bad - across all economic environments?

Tony Robbins in his new book, Money: Master the Game, lays out Bridgewater Associates' Ray Dalio's answer with the All Seasons Strategy (ASS - hows that for a catchy acronym?).

40% Long Term US Bonds
15% intermediate US Bonds
30% Stocks
7.5% Gold
7.5% Commodities

Dalio says most people don't understand where the risk in their portfolios comes from, as the conventional "diversified" 50-50 portfolio has 95% of its risk in stocks. Dalio focuses on diversification of risk with his All Seasons Strategy.

I devour anything I see on Ray Dalio. His investment mantra is "Expect surprises", and his core operating question is "What DON'T I know?". Challenge everything! He has compounded his Alpha fund over 20% for over 20 years.

In the last 40 years the All Seasons Strategy had only 6 down years, the average loss being -1.47%, the biggest -3.93%, while the compound return was 9.88%.

Huh. I have next to nothing in long Term US Bonds, paranoid about today's "low" rates. However (hopefully some sleuths here can provide actual data), I am afraid the LT Tsy is probably up 20%+ this year and I missed it. Although I hate buying "high", do you think I should now start picking up some long Treasury zeros in my IRRA, thinking that they will do well under the deflation scenario that could wreck my 65% stock allocation? Its probably still a very contrarian play to buy long Tsys.

 

[eta2020]

What type of investment portfolio would one need to have to be absolutely certain that it would perform well in good times and in bad - across all economic environments?

It does not exist, but there are lot of strategies that will perform well on a long run.

 

[eta2020]

BTW I don't like this specific portfolio. It is too heavy on Bonds. Bonds had massive 30 year bull market. Don't expect that next 30 years.

Anybody can cook up portfolio that performed great last 40 years. Hindsight 2020.

http://www.forbes.com/sites/nathanv...ger-ray-dalio-is-back-all-weather-fund-up-11/

His Alpha Hedge fund made 5% last year. Year before it was flat. Does not look like good deal to me. Besides investing in Hedge Funds is something I would recommend to avoid for numerous reasons.

 

[eytonxav]

IMHO, deploying that port in today's environment looks like a recipe for disaster.

 

[38Chevy454]

To me the goal is risk reduction, not overall performance. I agree it seems heavy on bonds. This might be good for someone that is quite risk averse, but I think it is going to come up short on returns. Classic trade-off: security vs return.

 

[eta2020]

To me the goal is risk reduction, not overall performance. I agree it seems heavy on bonds. This might be good for someone that is quite risk averse, but I think it is going to come up short on returns. Classic trade-off: security vs return.

You can not build security with Long Bonds at todays rates. With short bonds yes. Those 40% long bonds could experience annual double digit losses when rates start coming up. (depending on their length)

But those bonds would had performed mighty fine last 30 years That is why I say anybody can cook up great portfolio looking back......

 

[RetireBy90]

I agree with eta2020. Looking for a guarantee is like looking for fountain of youth. You could do FDIC insured savings or treasuries, but you would loose to inflation. 60/40 stocks/bonds has been shown over many years to provide long term gain with lower volatility.

 

[Totoro]

Just take this thought experiment: economic collapse in the US as an aggressive flu variant kills off 20% of the healthy working population in two years. Heroic efforts confine the disease to the US mainland.

Businesses start failing, so:

• Stock prices go down first as earnings get hit
• Corporate bonds go down second as companies start to fail
• Commodities drop since businesses produce less

Lucky we still have US Treasury bonds?

Well, tax revenues go down since people lose their jobs, die, and require care. Other countries get nervous about the sustainability of the US, and interest rates shoot up. A big shift by investors to the eurozone, china and india happens.

Will gold save this rainy day? At 7.5% of your portfolio and with random behavior of gold in the past, don't count on it.

Btw, if you think this cannot happen .. it's basically a combination of a banking crisis, a euro-crisis and an ebola/H5N1-crisis hitting a country at full strength.

 

[CaliforniaMan]

"An Important Note of Caution" Tony Robbins Aug 2010
An Important Note Of Caution Tony Robbins' Business and Finance Blog

I second all the comments on how anyone can make a portfolio that backtests well. Being so heavily into bonds and commodities in today's environment seems problematic at the best to me.

See the clip above for what this wizard said in the past. Good luck following him today.

 

[Totoro]

Big hands, deep voice. Groomed body language. White teeth.

Takes 7 minutes to ask for a little bit of time, getting you invested in his 'quick message' that takes 20 minutes to explain while he could have done it in 30 seconds.

Spends >70% of his time referring to his status and connections indirectly while claiming to play himself down. Gives a fear message and then reinforces that by claiming that it is a good thing and you can handle it.

Hardly any content. No decent logic.

Really well trained salesman with genetic perks. Even closes with a 'god bless' message.

Don't want.

 

[Senator]

What type of investment portfolio would one need to have to be absolutely certain that it would perform well in good times and in bad - across all economic environments?

A congressmen's pension.

 

[braumeister]

Big hands, deep voice. Groomed body language. White teeth.

As they say in Texas:
All hat, no cattle.

 

[MichaelB]

That guy sure knows how to talk. I stopped at 7:18, still not sure what his point is. My grandfather used to say "The more words you need the less you have to say".

 

[photoguy]

What type of investment portfolio would one need to have to be absolutely certain that it would perform well in good times and in bad - across all economic environments?

Tony Robbins in his new book, Money: Master the Game, lays out Bridgewater Associates' Ray Dalio's answer with the All Seasons Strategy (ASS - hows that for a catchy acronym?).

Sounds like a variation on the permanent portfolio. There's been a ton written on that as it became super popular recently. It's not for me however.

 

[harley]

That guy sure knows how to talk. I stopped at 7:18, still not sure what his point is. My grandfather used to say "The more words you need the less you have to say".

Lol! Good quote. I didn't even make it that far.

 

[Midpack]

I don't like this specific portfolio. It is too heavy on Bonds. Bonds had massive 30 year bull market. Don't expect that next 30 years.

+1, this is the key issue with the All Season portfolio IMO too. Just Google, there are plenty of critiques online (portfolio and the new book) explaining why it worked so well in the past, and isn't likely to in the next decade(s).

Elaine Garzarelli, Jack Grubman and many others, looked really smart at one time too...

 

[gcgang]

I agree with everyone else who expects interest rates to rise. I've expected it for several years. That's why I've got next to nothing in long Tsys. But maybe this is a mistake if I'm trying to protect wealth.

Its hard to time the market. Remember long Tsys were under 3% for 22 years from 1934 to 1956. Maybe we go like Japan and drop even lower. Who knows?

Even during the 1970s, when rates skyrocketed, the ASS had just one losing year, 1974, down 1.16%.

I looked up 20 year Strps. About 2.3%. $6500 to get $10k. 20 years! I remember starting my IRA in 1982 and getting about $20k for $2000.


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[bad_LNIP]

BXM for the win. It has shown a long term edge over SPY
​

 

[mathjak107]

with the 40 year bull market on bonds about over my opinion is a buy and die type portfolio that is good forever will no longer be the best thing to do .

i have always believed in buy and manage, meaning nudging the portfolio along the way to fit the big picture.

as an example when the dollar was weak fidely export and multinational was a good pick. but a strenthening dollar made it a poor choice so it gets swapped out.

today bonds are still a good choice but in the near term they may not be. i dynamically adjust for that. if inflation and rates pick up i may move the bond money to TIPS,REIT INCOME , FLOATING RATE FUNDS AND COMMODITIES .

IT IS LIKE STEERING A BIG SHIP AND NUDGING IT EVERY SO OFTEN TO STAY ON COURSE.

 

[gcgang]

I agree the bond bull market, which started in 1982, is long in the tooth. I've thought that for several years.

Yet this year thru 12/8, EDV (Vanguard long strips) is up 38% and VGLT (long tsy bonds) is up 22%.

Maybe, just maybe, Ray Dalio is smarter than the rest of us.


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[mathjak107]

this year those long treasurey bonds with those tiny yields are up 23% .

i am a big believer in staying dynamic with my portfolio nudging it to fit the big picture like steering a big ship to keep it on course.

i never believed in buying one mix and sitting static forever. there are assets to own and not own at different times of the business cycle.


how you put your portfiolio together will depend on what you want out of it. is it bullet-proofing? is it gains? is it low volatility?

how you structure will depend on those questions.

short term bonds and intermediate bonds do not have enough ooomph to offset a big drop in stocks. you would want long term bonds to fly fighter cover.

yesterday the market fell 200 points at one point , the long treasury soared 1.75%.

in 2008-2009 when stocks fell 45% the long bond was up 45%.


but flying fighter cover comes at a price and with those long bonds you need gold or commodities as an inflation hedge like the permanent portfolio.

but if bullet proofing is not your goal than long bonds are not for you.

you need to define what it is you want your portfolio to do for you first.

 

[eta2020]

i am a big believer in staying dynamic with my portfolio nudging it to fit the big picture like steering a big ship to keep it on course.

i never believed in buying one mix and sitting static forever. there are assets to own and not own at different times of the business cycle.

Your money is like soap |

"Your money is like soap" the more you use it the less you have of it ....

 

[mathjak107]

but the more i fine tune things to the world around me the more money i have. my opinion is going forward a static portfolio of stocks and bonds will be very different from the past when a 40 year bull market in bonds made that possible.

 

[eta2020]

but the more i fine tune things to the world around me the more money i have. my opinion is going forward a static portfolio of stocks and bonds will be very different from the past when a 40 year bull market in bonds made that possible.

"The four most dangerous words in investing are: 'this time it's different.'"

Sir John Templeton

As much as I don't like Ray Dalio's strategy I am even less in favour of ad hoc timing . But that may work for some lucky or very smart people.

 

[mathjak107]

the slight shiftiung of allocations over time to different types of funds has worked well and will work just fine regardless.

my investing plan has never been to sit stagnant with the same asset classes and funds forever.

actually the only thing that repeats itself over and over is historians. life alters things just different enough each time to make things just different enough that something else would have played out more effectively,.

remember the first iraq invasion ,stocks plunged on the news. second iraq invasion stocks soared on the news .

no one can guess what these events will be but the one thing events lead to is longer term trends that can be adjusted slightly for.

you do not need a crystal ball to know that at some point bond rates will be going higher , perhaps eventually reaching their historical mean of 6-7%.


do you really want to sit stagnant in bonds forever . remember it took 40 years to get to this point , you may never see rates cycle around again in your lifetime.

you could choose to invest the same way you did when rates were falling and sit forever in the same assets year in an year out. but i think that wouldn't be the best way going forward.

i know my own portfolio of dynamically adjusted funds is about 450k ahead of just an s&p500 fund or total market fund.

that is documented in the newsletter i have been following for more than 25 years. in fact the newsletter they merged with had an even better track record . so dynamically adjusting funds to fit the bigger picture has worked well.

going forward with bonds on such iffy ground i see adjusting dynamically even more important.

there will be far better choices for bond fund money to be moved to when rates and inflation pick up.

for the bond portion a swap to floating rate funds , reit income funds ,TIPS , even some commodity funds would be far better choicesr than sitting with a conventional bond fund watching it fall.


convential portfolios that are set and forget tend to plan around only low rates and good times. they perform poorly if we have extended downturns.

usually they do not carry enough weight like the permanent portfolio would to undo the other scenerios that can play out besides good times.

we have basically 4 major ones

recession

depression

prosperity

inflation


like tires an all season tire really is not all season ,it is geared around the better weather. basically it handles no season really well.


but global changes may make the weather very different so you may want to own a few different types of tires to switch to depending on that weather and put them on when that season is here..