Review of Ray Dalio All Weather Portfolio for UK Investors
Вставка
- Опубліковано 2 чер 2024
- The All Weather Portfolio is intended to do well whatever economic conditions are thrown at it. Ray Dalio came up with the All Weather portfolio to help people with a simple, fixed allocation that performs well throughout business cycles as markets rise and (temporarily) crash. This was consequently popularised by Tony Robbins as the All Seasons Portfolio in his excellent books, "Unbreakable" and "Money Master The Game". How can UK investors implement the All Weather portfolio, how much does it cost and what is the risk and return of the portfolio?
Sign up to our free weekly market roundup to get news and views about what's going on in the stock market and wider economy pensioncraft.com/market-roundup/
Why not join our membership on Patreon where you can learn via our Slack chat forum, take part in our regular members-only live Q&A webinars and gain access to a library of exclusive videos and resources. To find out more about this click here / pensioncraft
We rely on your support to keep producing free content via UA-cam. Please help us to remain independent and producing new content by supporting us on UA-cam ua-cam.com/users/pensioncraft...
This is what else PensionCraft Offers:
- Book a Power Hour with Ramin so he can answer your questions in a one-to-one coaching session via a video call: pensioncraft.com/register/pow...
- Understand investment in more depth with my online courses pensioncraft.com/courses-we-o...
Recommended PensionCraft UA-cam Playlists
- There are many different types of investment strategies. In this playlist we look at a number of these so that you decide what is right for you. • Investment Strategies
- Bewildered by investment? Start with this playlist • Investing for Beginners
- Building blocks for your portfolio • Portfolio Building Blocks
If you like our content and want us to continue to produce it, you can support us with a one-off payment here paypal.me/pensioncraft
#PensionCraft #AllWeatherPortfolio #RayDalio
We rely on your support, to see the benefits of supporting us and becoming part of our community click here: patreon.com/pensioncraft
If you are located outside of the U.S., you may want to adjust the portfolio to account for the currency risk. The allocations needed in order to achieve risk parity in dollar-terms may be different for other currencies. You can easily balance the risks by adding up the standard deviations of the various ETF's. I added up the standard deviations of the ETFs used by Ray Dalio and they balance almost perfectly. It doesnt take a genius to balance risk. You just compare the standard deviations of each holding and try to make them as equal as possible. If a stock or ETF has a higher standard deviation, then you buy less of it in order to compensate for the higher risk.
I find the conclusion at the end a bit unsatisfying. When you track the performance until 1970, the all weather portfolio has an average return of 5.3% with a SD of 9.6%. The simple 60/40 allocation has a 10% higher return, 5.8%, but the SD is almost 50% higher. In other words: The risk-adjusted return of the all-weather portfolio has been higher over the longer period of time.
Good observation.
And don't forget the power of rebalancing. All weather outperformed everything during corona even without rebalancing.
@@sreehari8252 standard deviation i think?
@@saileshmepani9095 You're correct, standard deviation measures volatility which measures risk. High SD = High risk
Easy one of the best (financial) channels, on the net. Very grateful for what I learn here, cheers. From UK (South Wales)
Great Video thank you. Would really like to see you interviewing Paul Merriman or reviewing his ultimate buy and hold portfolio and his two funds for life strategy. Thanks again.
Hi PensionCraft Team, Thanks for putting this video together its spot on! Just wanted to clarify the ticker codes for each of these funds if possible.
Ramin I believe you might've misunderstood the purpose of Dalio's portfolio. The idea is you take fairly uncorrelated assets that are quite stable in aggregate, then you lever them up such that they provide a higher risk adjusted return than the alternatives.
Thanks for your video. 2 points for feedback. 1) It came across that you were baised towards 60/40 stock portfolio as i) the risk was nearly 50% more - you quoted slightly ii) you dodnt mention draw downs or PWR which is the true test of a portfolio in the long term and 2) you didnt benchmark against the US version of all weather fund and then factored in currency risk. This would have been a more valuable analysis to be added on to give an overall picture. I hope that this is taken the spirit it is meant.
A lot of information in a very short video. Excellent job!
Glad you liked it cullenbigd . Thanks Ramin
Great informational video...thanks!
Thank you Voice Guy!
Fantastic as always.
Hi Trung, Thanks for the support. Ramin
Hi Ramin,
You have a vast amount of knowledge, thank you from a younger less wise brit.
Please could you do a video on UK and USA stocks you expect to see a rise in the next three years.
I think this would be an interesting video with Brexit and the trade war between China and the USA.
Hi EA LOVES MONEY I'd rather be younger than wiser! I never invest in single stocks because I don't believe that the vast majority of investors, professional or not, can beat the market. Hence my article the Death of the Alpha Cult pensioncraft.com/death-alpha-cult/ Also, I don't do forecasts, although I certainly have an opinion on which regions will perform best which I share with my Patreon supporters regularly. Thanks, Ramin.
Pension craft, awesome Video! Can you do a comparison for US also?
super vid!!! just out of interest have you done somthing simalar on Swensen Portfolio for (UK)?
excellent video! Very informative. What time are your calls on a Sunday? I was looking at the vanguard the uk gilt funds and don't understand why Vanguard have rated them at 4 and 5 on the risk rating; making them the highest risk fixed income securities and higher risk then the LS80; could you shed some light on this by any chance? I would think chance of default is negligible and having the inflation protection; surely it would be make it lower risk?
Hi MM the calls are at 8 pm. I think duration is the reason why the risk is judged as being high for the gilt funds you mention. It certainly isn't default risk. I talk about bond fund risks, including gilts and linkers, in my course on "How To Choose a Bond Fund" pensioncraft.com/register/investment-for-absolute-beginners/how-to-choose-a-bond-fund/ Thanks, Ramin.
Any videos on other portfolios?
Any suggested diy financial planning tools ?
Hello thanks for the educational video great work.
When I read the part about the all all weather it mentions if we want exposure to stock we should use something like the sp500 and where it mentioned bonds it had in brackets TREASURY.
can you explain how you came to the conclusion that the all weather is applicable "regionally".
I am a Greek citizen it seems odd that I would invest in Greek bonds :p
Cheers
Hi David, the bond component will have currency risk if you're not US-based and that swamps the usual low risk and correlation of government bonds. For the equity component currency volatility is less of an issue because equity volatility is usually much higher. For example of you look at portfoliocharts.com/ where it back-tests the All Weather portfolio in a number of regions it uses domestic markets, you'll see the pulldown menu to "Change the home country to translate the portfolio to local assets, currency, and inflation". Greek bond yields are lower than those of US Treasuries and so must have seen spectacular returns over the last few years, consider yourself lucky! But as a European citizen you get to choose from a variety of government bonds because they're all denominated in euro. So you could go for a country where you get a bit more yield if you're willing to take a bit of peripheral sovereign risk... Thanks, Ramin.
Thanks for this video @PensionCraft , I recently started to put together a portfolio very similar to the All-Weather portfolio, however, when I went to implement it the fees & charges were way to high. Now I'm starting from the beginning again, & this video has helped greatly with that! 🙏🏼
I'm delighted that this was useful TheWeirdVisionGuy In fact, I was surprised at how cheaply one could replicate the All Weather portfolio if you look around for cheap funds. Thanks, Ramin.
@@Pensioncraft I am looking to invest with Vanguard, but I'm unsure as to whether or not replicate the All Weather Strategy or invest into one (or some) of their ready built funds...
Vanguard doesn't have any commodity funds so the gold and general commodity allocation won't be available if you use Vanguard's platform. Thanks, Ramin.
@@Pensioncraft Okay good to know, thanks for your wisdom! I'm still debating which would be best, any advice. This is going to be a long term investment, possibly for my pension, I'm currently 25, which I will first put a lump sum into & then drip feed every quarter.
@@TheWeirdVisionGuy I hope you looked into a SIPP instead?
Great video, and you could review J C Collins 'A simple path to wealth'. 🙌
Hi Capra Physics, that sounds like a great book, but I don't usually do book reviews. Maybe I should? Thanks, Ramin.
@@Pensioncraft I think it would be great if you did
I'll save you the effort: It's vastly overrated, and far too US-centric. His penchant for "VTSAX all day every day" is just plain narrowminded. There are many excellent resources which do a better job of educating you as an investor and in the realm of personal finance.
Hi Ramin,
Thanks for another interesting video. You've compared all weather vs VG LS funds for 5 year period and since 1970 long period. But what about 10-15 year periods where your portfolio might caught 1-2 market crashes? Wouldn't the all weather safer than VG LS 60-100% funds in stormy market?
Hi Tyn Ong do you mean look at a comparison of 10 to 15 year rolling periods or just a straight comparison of performance during crashes? It's annoying that Vanguard UK LifeStrategy returns only go back to June 23rd 2011 as they missed out on all the fun in 2008/2009 which would make a beautiful example. Thanks, Ramin.
Great video.
However I feel the comparison with the Vanguard variants is not a fair one. The LS 60. Consist of 15% allocation to UK stocks the rest is the rest of the world!
UK is about 10% of the World by market cap. So By being 100 in UK once is missing out on a lot on growth (which the LS is not!)
Perhaps a world ETF would be better suited?
Hi Shishir that's an interesting idea, I chose the domestic stock market because that's what Dalio suggests. The reason I chose LifeStrategy funds for comparison is that I consider them a benchmark for any multi-asset fund given their low fee and good performance. Thanks, Ramin.
Great topic for a video Ramin. I'm fascinated by Dalio's approach, although it's a a bit too Velma for my Scooby like risk appetite. What do you think of just following the original US style model for a UK investor? In my opinion, the only concern would be currency, but if pound cost averaging in over time, currency fluctuations would be smoothed out. Just seems to me that it would work much better with US Treasuries, because both institutional and retail money tends to flock to the dollar in times of crisis. Although I think UK debt is pretty safe, Sterling doesn't have the same psychological hold as the dollar seems to. Also, I think you have to consider the USD/Gold relationship. Would GBP be as uncorrelated with gold in a deflationary environment? The dollar and gold seem to me to fit more firmly in different quadrants, as I think is Dalio's intention.
Hi Benjamin, I did it using UK assets because that's what Dalio suggests, so I tried to be as close to the spirit of his approach as possible. That's an interesting idea. Of course the problem with US Treasuries in sterling is that their risk is dominated by currency fluctuations in GBPUSD. The trouble with currency is that it can drift over long periods of time and in order to flatter the US assets sterling would have to weaken even further over the long term, and I'm not convinced that's going to happen. But you're spot on with the flight-to-safety appeal of the dollar in bad times which would push sterling down vs the dollar and benefit the portfolio. Deflation in the UK would weaken sterling and push up the value of gold in sterling terms but I guess it depends on what's happening in the rest of the world at the time. But, as I think you suggest, gold is pretty unreliable as a hedge against UK inflation and deflation. Interesting! Thanks, Ramin.
Nice video as usual.
A ready made product that is quite similar to this "All Weather" portfolio is "Capital Gearing Trust" - a closed ended investment company. Its fees are relatively high at nearly 0.8%, but it has so far justified those fees with a 30+ year track record of good returns (currently averaging >6% per year after fees) at very low volatility levels (actually went up in value during the 2008-2009 crash period). As far as I can see, it beats the classic 60-40 products on the risk-return curve.
Sources: mainly Morningstar's 20-year total return graphs.
I would rather take lessons from their annual reports than copy and paste their strategy or buy in.
Their strategy has involved 30-40% Index Linked Gilts, 20-40% equity, 10-20% corp bonds, corp debt and pref shares, 0-20% gov bonds, and trace amounts of cash and gold, with no currency hedging so plenty of forexposure. IL Gilts have done 7.2% since inception but are now very overvalued with negative yields, and gilt and bond yields are so low and UK equitieis are so averagely valued that, while the strategy may be good for volatility, I do not believe they can continue this kind of outperformance over the next decade or so. Also the current holdings including index funds, or things that can very easily be held in index funds. So I do not believe that the 0.8% fee is worth it.
Sources:
www.fundslibrary.co.uk/FundsLibrary.DataRetrieval/Documents.aspx/?type=packet_fund_class_doc_factsheet_private&id=bc4b81de-ae7f-4cbe-9725-1c3fe9886b17&user=NsjXQ%2fbIPq05bRkqkY8uS4vIbqSDRGy32Y%2frXCe%2fcXEueQUu%2bQxY8gVScBpRD8bJ&r=1
www.fundslibrary.co.uk/FundsLibrary.DataRetrieval/Documents.aspx/?type=sl.ra.full&id=bc4b81de-ae7f-4cbe-9725-1c3fe9886b17&user=ceDBAqt0lyj4CCdN406o0Hfc7RB7FxcXFzmLsQvbzl1jKRNG6%2b8LFkR5Rq20jJCA&r=1
Why are you so hostile? I did not copy and paste anything, I simply gave my opinion in my own words. I have already read the monthly factsheets (they are not called annual reports). I was just expressing my sincere opinion and trying to be helpful. Perhaps you have an agenda...or just take pleasure in putting other people down?
Hi Olivier, thanks for your comment. I don't really buy into the idea of active management, but those returns are consistent. My worry would be that future returns wouldn't match those in the past. But I'll look into that fund it certain looks interesting. Thanks, Ramin.
@@olivierdoorenbos5099 um... I'm really not being hostile they have a really impressive track record of outperformance. I'm just highly sceptical, I want to know why things are the way they are and I think out loud bluntly and at length and i'm an index fund-amentalist/Bogle purist.
Hi Ramin, great video thank you. Currently I’m trying to make up lost group having only started pension savings about 5 years ago. My pension allocation is currently 100% equities, majority US, then UK and some global exposure. I’ve been considering a move to something like all weather for some time due to expected headwinds in US and global growth so have two questions. Firstly, why not just run the all weather on US. Investments - is it purely because of currency risk we should do it domestically, and the second question is given the propensity for investors to time portfolio adjustments poorly, could I leave things as they are as my investment horizon is 20 years + ? I understand any comment is not investment advice but would be interested to hear your thoughts, thanks
Hi Jamie as long as your portfolio is globally diversified and your fees are low (more than 0.2% for your platform or your funds should be avoided) you sound like you're in good shape. Make sure you don't sell if markets fall because your 100% equity allocation is likely to fall by 50% from its previous peak at some point which will be very painful. This seems to be happening once every decade. I'm not keen on the commodity portion of All Weather because commodities generate no income and are themselves very volatile and prone to crashing. In terms of UK investments versus US investments I was trying to stick to the spirit of Dalio's portfolio, but there's no reason why you couldn't swap out UK equity for US equity. The bond component, which is a BIG part of the All Weather portfolio is probably best kept either in UK gilts or sterling hedged US Treasuries. That's because the low risk of UK gilts would vanish an be swamped by currency risk (the volatility of GBPUSD is much larger than the volatility of most UK gilt funds). Thanks, Ramin.
@@Pensioncraft Thanks ever so much for the reply. I've been pondering what to do for a while, looks like market corrections are here and I'm still 100% equity. Most of this is US equity, some uk small cap equity and some international equity, but there are some added exposure to us equities in the global fund. I think the plan now is to stay invested and ride it out while using the ISA to perhaps get some gold and US Treasury GBP hedged exposure. Thanks again, planning to support you on patreon this week. Cheers.
Thanks for supporting us @@JcMrry!
Is it not the case that when Dalio came up with the all-weather portfolio, it is inherently a function of the macroeconomic outlook of the united states? If he had been British or if he had tried to tailor an all-weather portfolio for the UK market, the all-weather portfolio might have been something very similar to the 40-60 strategy. Or if he had tried to make an all-weather portfolio for the Canadian market, the portfolio will be different again for the Canadian equity market barely performs better than bonds even in bull markets. So when we adopt the all-weather portfolio, it is not enough to just reestablish the ingredients of the asset classes, but also their percentage so that the risk-reward metrics remain the same?
Hi raistLai that's a great point. But the fact is that as long as you have a globally diversified portfolio (diversified across region and asset types) which matches your risk appetite, risk capacity and investment horizon then you will probably do okay in the long run. Meb Faber's Global Asset Allocation book makes this point. He compares many strategies over the long term and shows that the difference between the best and worst strategy (1.84%) over a 40 year period is smaller than the fees many people pay! The moral of the story is that low fees are just as important as asset allocation. This is my affiliate link for "Global Asset Allocation: A Survey of the World's Top Asset Allocation Strategies" on Amazon www.amazon.co.uk/gp/product/0988679922/ref=as_li_tl?ie=UTF8&camp=1634&creative=6738&creativeASIN=0988679922&linkCode=as2&tag=pensioncraft-21&linkId=97855e8139eca5c761dc0d1ed271dfb2 Thanks, Ramin.
Which one you would prefer VUSA or VG LS 80% ? I do have VG LS 80%, but VUSA has better return history also lower fees.
Thanks
( I do not consider your answer as a recommendation, I am just curious )
Hi Róbert, at the moment US valuation is high and earnings are losing steam so I'd be cautious about a large concentration in US equity. The more globally diversified and bond-hedged LS 80% would be preferable if this is your only holding. But of course, a portfolio usually contains lots of funds so my preference would depend on what else I own. Which would be your preference? Thanks, Ramin
@@Pensioncraft
At the moment i have :
VG LS 80%
Target date 2040( but I am thinking to switch to VG LS80%) cause they are similar.
VMID
VGOV
VEMT
I am 28 yr old, so my risk appetite its quite high right now. Thanks for your answer, much appreciated.
Interesting. Is there a reason why the stocks should be local? In a German forum I asked a question whether a portfolio should look different if you live in a different currency area. That was denied there. So the portfolio is identical for every citizen of the world. Is there a study for this investment idea (local stocks)?
Hi somtam I had a Greek client ask the same question. I'm not aware of a study on that. But personally, I prefer a globally diversified portfolio ua-cam.com/video/u5UEyP9ehSc/v-deo.html Thanks, Ramin.
I really don’t think you can swap in LT and IT gilts for LT and IT treasuries. Dalio is very correlation driven and the correlations of the gilts just do not line up. He is particularly focused on all the pairwise and mutual correlations. He has also commented that “the real” version makes extensive use of leverage (presumably for eg municipal bonds) to pull in more uncorrelated assets, maybe that’s a hint to replication? Love your channel, thanks! 🙏
Hi Rob, the problem is that unhedged US Treasuries are essentially a punt on the GBPUSD exchange rate for UK investors. Currency moves will dominate volatility and correlations for unhedged UK investors in US Treasuries. Perhaps a hedged US Treasury fund would be more appropriate? I think risk parity came after the popularisation of All Weather? But there, as you say, they lever up the fixed income component to match the volatility of equity. Thanks, Ramin.
PensionCraft Hi Ramin! I think he’s trying to capture bond convexity and negative “-0.5” correlation with the LT treasury proportion. Do you think the currency hedge sucks the air out of the correlation? That would be a fascinating effect to note!
US Treasury correlation is swamped by currency correlation so I doubt that the hedge would be as effective as it is in dollars. I guess longer duration bonds have large convexity, hence the large allocation. Also the income return will be greater over the long term with longer dated Treasuries because the yield curve is usually upward sloping. So the convexity and income would survive the FX translation but correlation is going to be muddied by GBPUSD. Interesting. Thanks, Ramin.
Looking backwards is weal sauce. What's the future hold?
Question:
Why you or Ray give a All Weather Portfolio if the market changes quadrants every so often?
Shouldn’t the allocation change accordingly?
Great video. I think young people need to be focused on higher risk stocks over bonds. Over the long term risk will be rewarded.
Avoid punts though.
Andy.
There are some funds which are hedged against any changes in sterling but also I think there are some funds in sterling which may be a better bet. I too struggle with figuring out a way to hedge the American stocks that I hold. I think I can only see sterling being quite a lot higher than it is now in the next 10 to 20 years. I think we are close to the blood on the streets analogy right now
Thanks Money Unshackled I agree that over the long-term most of the time equity outperforms bonds so for a long investment horizon the All Weather looks a bit too bondy. Thanks, Ramin.
I like the video but do you have his updated portfolio. That is his old profolio. He’s recently said he’s buying up china ETFs and other emerging markets. Also he’s doubling down on Gold
Hi Metal Bum, yes I've read his paradigm shift article which is very interesting. I don't agree with it, because it assumes that central banks collude with the government to inflate away government debt which is just plain wrong, but it's thought-provoking. As real rates go down that's a good environment for gold so this is more of a tactical move whatever his justification. We discussed this on last Sunday's Patreon supporters call in quite a bit of detail. I don't think he's going to change the All-Weather portfolio which is quite separate from his Bridgewater funds, some of which aren't doing too well. As the FT said a few days ago "The $150bn hedge fund group founded by Ray Dalio saw its Pure Alpha fund, which tries to surf macroeconomic trends, lose 4.9 per cent in the six months to June as global equity and bond markets bounced on hopes of looser monetary policy." www.ft.com/content/dad12be2-abbd-11e9-8030-530adfa879c2 Thanks, Ramin
14.2% risk vs 9.6% risk is 48% riskier or ~50% riskier and you call it "slightly higher"?
for a higher return of 5.8% in place of 5.3% which is 9.4% better.
~10% more relative return for a 50% more relative risk I don't feel the wording used is balanced objectively.
While at least the number are there and the information is relatively detailed.
Thanks for the video.
Hi hatkyinc percentage changes in percentage changes give crazily high figures which is why small percentages like volatility aren't compared in this way. For example reducing the fee for a fund from 0.2% to 0.1% is a 100% fall. The period over which assets are compared probably makes these return and, to a lesser extent, volatility estimates vary a great deal. So I wouldn't read a huge amount into the difference between All Weather and the 60/40 strategy, they're in the same ball park. Thanks, Ramin.
What’s the one on one? Portfolio review and advice over the phone? Thanks
Hi A K I don't provide advice just investment education. I use Zoom videoconferencing. We use that for the group calls on a Sunday evening too. Thanks, Ramin
I wonder how this has performed in the last few weeks. I wonder how often they rebalance the all weather fund too??
On extraetf (German site) the model all weather portfolio is up 8% ytd
I believe Ray Dalio advises a rebalance each quarter.
I have been implementing this portfolio in the Netherlands. Its doing amazing for the last 3 years. Has anyone in the UK actually implemented this strategy? Just curious so let me know
Hi Greg as I show in the video ua-cam.com/video/5T-rc90MGBE/v-deo.html for UK investors the LifeStrategy funds would have given much better return for the same level of risk of the All Weather fund since 2011.
How is your portfolio doing right now?
I invest my pension per the all-weather principles in the UK but I'm diversified between UK & US w/3-4% in Pacific ex-Japan equity markets. My annualised return since 2015 as of today is 8.3%.
I've taken the same approach with my ISA (individual savings account). This a/c allows £20K to be invested per year with no capital gains tax.
FOr some reason the annualised return is usually 1% less. The only difference is that I make monthly contributions to the ISA but only invest once per year into the pension.
Hi there just wondering what your background is and what you think of nutmeg ready made portfolios versus a vanguard mix. Obviously fees a lot less with vanguard
Hi Shel DeMax as you say the fees are the elephant in the room. I think you can replicate a robo adviser like Nutmeg and stand a good chance of outperforming Nutmeg and others too, pensioncraft.com/register/investment-for-absolute-beginners/create-cheap-robo-fund/ Thanks, Ramin.
How would the portfolio perform if i just had.
1.vanguard etf world stock
2.vanguard etf world bond
3.gold etf
4.commodities etf
And have them at the same percentage as ray dalio all weather
Why does it have to be a UK all weather"???
How would that portfolio fair
Cheer ramin
Also I could have an American all weather portfolio if I wanted to as long as I'm protected from currency risk through hedging??
Right
Cheers
Hi David you could use portfoliocharts.com to work this out as they have a UK and US version of the All Weather portfolio. Thanks, Ramin.
In the UK we don't have exposure to all US ETF's due to EU legislation, so you would need to find an alternative you could buy for a UK based portfolio, there are some exceptions but they wouldn't really help a retail investor more for the professionals.
Can you do a video on automating the funding for investments? Individually investing in all these funds seems harder than A cheap mutual fund on Vanguard
Hi Chris N what do you mean by automating the funding? Do you mean automatically buying towards a fixed allocation each month as savings feed into your account? Thanks, Ramin.
@@Pensioncraft Exactly. This is something I would love to see explained.
Is there any point going so high on bonds as a 21 year old? I'm thinking a vanguard 80/20 split as my first investment
And hold around 30 years
Interesting to better understand an MSc dissertation I had to mark.
Hi Hirbod Assa, Thank you for taking the time to comment. Ramin
thanks Ramin for this video; I looked in some detail at the all weather portfolio when I read Tony Robbins book. The problem for me is that I cant see the point of owning all those bonds - or gold or commodities.
While bonds certainly reduce volatility, over any length of time, with interest rates at current levels, equities are likely to provide better long term returns. I think it highly unlikely, for a wide variety of reasons, that interest rates will rise significantly above their current levels; in fact it is more likely that interest rates will stay in a low band for the foreseeable future. The impressive results for bonds since 1980 is due largely to capital growth as interest rates have fallen from a peak of 20% to 2%.
Similarly for inflation; it is difficult to see how inflation can grow significantly with a surplus of oil production and continued advances in AI and production efficiency. Already electric cars are cheaper to run than ICE cars and transportation accounts for about half of all oil consumption. Absent war in the ME I cant see oil getting much above $80 a barrel. So having a portfolio that covers you for a spike in interest rates or high inflation seems inappropriate at this point.
In fact it is more likely that there will be anaemic global growth, which argues for a higher equity component with an appropriate contingency fund
Hi Nicholas, bonds are hugely varied ranging from high yield credit, to emerging market sovereign bonds, to convertible bonds which turn into equity, to Mortgage Backed Securities and inflation-linked bonds as well as more vanilla US Treasuries and UK Gilts. For some of those types of bond total return depends to a large degree on income rather than capital growth. I agree with you about gold and commodities though. Long-term inflation trends are difficult to call. For example, if you read the latest Fed Minutes www.federalreserve.gov/monetarypolicy/fomcminutes20190501.htm the upside for inflation certainly isn't a big worry at the moment. But factors like protectionism, curbs on immigration, skills shortages all tend to push inflation upwards and they're on the rise. Thanks, Ramin.
@@Pensioncraft Hi Ramin, while what you say about the variety of bonds available is true, the all weather portfolio recommends 40% long term gov bonds and 15% intermediate term gov bonds and my comments were directed at these recommendations. I hardly think that the sort of bonds you are talking about would fit into a simple fixed allocation. As I recall from the book the allocation is driven at least partly by trying to equalise the risk and volatility as between bonds and stocks
Hi Nicholas you're right he just goes for vanilla US Treasuries. I like the Ulcer Index on portfoliocharts.com which shows the beneficial effects of those Treasuries during stormy equity periods. During strong rallies like those during the last decade it's hard to remember the gut-wrenching feeling of losing 50% of the value in your equity, I suspect less people would question the bond allocation during those periods. Thanks, Ramin.
Thank you for a great series of informative videos. Two objections with this particular one though. First is that Dalio's video on how the economic machine works is fundamentally flawed. Can't really get into it here but please check out this guy's in depth analysis - ua-cam.com/video/dVCEWMI8rCo/v-deo.html
Second, there are other portfolios that have done better that the All Weather Portfolio on a risk-adjusted base, one being the Permanent Portfolio.
What's a "Slack channel"?
Hi Mon Abri this video may help ua-cam.com/video/9RJZMSsH7-g/v-deo.html but it's an app that lets you share text messages with a group of people. Thanks, Ramin
@@Pensioncraft ok, thanks!
Why would you buy bonds with 0% rate?
Hi Taty income is only one reason to buy developed market government bonds. Two others are capital protection and to act as an equity hedge in your portfolio. So yes, I'd still consider zero coupon government bonds for their other two roles in my portfolio. Thanks, Ramin.
7:00 isn't it 0.12%?
Reminds of my student days. I am unlikely to invest in Gold or Commodities but very interesting nonetheless
I am glad it was interesting misfit. We appreciate the support.
Heavy allocation to LT bonds, seems backward-looking to the recent bond bull market. Historically investors have not been compensated for holding long-term bonds over intermediates.
Something like 40% global stocks 20% global REITs 20% intermediate bonds 20% gold would be a more robust Permanent Portfolio. Forego commodities and increase the gold %. Commodity futures are a zero sum game between hedgers and speculators.
Hi Forestman, personally I'm not keen on gold at the moment given higher real rates and its unreliability as an inflation or equity hedge pensioncraft.com/is-gold-a-good-investment/ I'm not keen on commodities either. Also, if you buy long-dated US Treasuries and hold them to maturity the total return will usually be higher than the same sized short-dated Treasuries holding. This is because the yield curve is upward sloping and the default risk for US Treasuries is negligible. Thanks, Ramin
Tony is so much bigger than Ray in that photo.
This portfolio doing pretty badly and hit max DD recently. TLT dragging it down.