All Weather Portfolio: 5 questions (and answers) about the mix
The All Weather Portfolio is a diversified asset mix first introduced by hedge fund manager Ray Dalio and popularized in Tony Robbins’s book MONEY Master the Game: 7 Simple Steps to Financial Freedom. Here’s what the portfolio looks like: I can already hear you now: “Yeah, yeah. Another portfolio mix that’s supposed to solve all my money problems. What makes this one different?” Well as you might be able to guess, this portfolio is designed to weather through any financial climate — be it a bull market, bear market, recession, or whatever! And based on its historical performance thus far, it holds up to the name. Let’s take a look at the All Weather Portfolio, its origins, and how you can build one yourself. Who created the All Weather Portfolio?The All Weather Portfolio is the brainchild of hedge fund manager Ray Dalio. Dalio is the founder of Bridgewater Associates, the “world’s biggest hedge fund firm,” according to Forbes. The firm is also famous for its flagship “Pure Alpha” fund — a fund that holds nearly $40 billion. Oh, and Dalio also predicted the 2008 financial crisis. From The New Yorker:
Before all that, though, he had a relatively modest upbringing. The son of a working-class Italian-American family, Dalio worked as a golf caddy when he was young, earning tips from his wealthier clientele. After a brief stint on the floor of the New York Stock Exchange, he started Bridgewater Associates in 1975 out of his Manhattan apartment. More than three decades later, it’s grown to a massively successful hedge fund firm that manages over $160 billion in assets. It wasn’t until he was interviewed by motivational speaker and life coach Tony Robbins, though, that he revealed his All Weather Portfolio to the world. In an interview published in Tony Robbins’s book MONEY Master the Game: 7 Simple Steps to Financial Freedom, Dalio presented an asset allocation mix that Robbins says “stands the test of time.” Let’s take a look at the exact asset allocation in that portfolio now and see the reasons behind why it works. What’s in the All Weather Portfolio?The asset allocation of the portfolio is broken up like this:
The reason he chose those assets goes into his theory on economic “seasons.” According to Dalio, there are four things that affect the value of assets:
Based on these elements, Dalio says that we can then expect four different seasons that the economy can go through. They are:
So he constructed a portfolio with assets that have performed well when each of those seasons occurred. The result is a diversified portfolio that can consistently earn you money while keeping you financially secure during bear markets. A few interesting takeaways from the portfolio:
This all combines to make a well-balanced portfolio that can “weather” any season … but how well has it really done in the past? How has the All Weather Portfolio done in the past?Back-testing the All Weather Portfolio reveals that it does generally live up to its name. “The strategy [Dalio shares] has produced just under 10% annually and made money more than 85% of the time in the last 30 years (between 1984 and 2013)!” Robbins writes. And it isn’t just Robbins who’s saying this. Others have back-tested the All Weather Portfolio and some have even found that it outperformed the popular 60/40 asset allocation mix from 1984 through 2013. Robbins also notes that if you invested in the All Weather Portfolio from 1984 through 2013, you would have made money just over 86% of the time. The average loss was just under 2% with one of the losses at just .03%. A few more fast comparisons:
How do I build an All Weather Portfolio?If you want to build your own All Weather Portfolio but don’t know where to start, don’t worry. Here’s a suggestion for comparable securities that you can invest in yourself (courtesy of Nasdaq.com):
The breakdown of your portfolio will look like this when it’s all said and done: If you’ve never invested before and don’t know how to actually buy the above shares, you’re in luck: There is a wealth of great, reliable brokers to help get you started building your portfolio. Our best advice for choosing a broker? Pick one of the big ones. Our suggestions:
BONUS: If you want Ramit’s insights to a few great companies that provide great brokerage services, be sure to check out his video on how to choose a Roth IRA. You can easily sign up for these brokers by following seven really easy steps:
NOTE: The wording and order of the steps will vary from broker to broker but the steps are essentially the same. You’re also going to want to make sure you have your social security number, employer address, and bank info like account number and routing number available when you sign up, as they’ll come in handy during the application process. The application process can be as quick as 15 minutes. In the same time it would take to watch this weirdo tell you how much to charge your customers, you could set up a new brokerage account and start investing in your future. If you have any questions about funds or trading, call up the numbers provided above. They’ll connect you with a fiduciary who works for the bank in order to give you the best advice and guidance they can. Pro-tip: Automate your All Weather PortfolioYou can take your investing even further by automating the whole process so you can easily invest money each month when your paycheck arrives. Automating your personal finances lets you know exactly how much you have to spend each month while setting aside any worries about paying the bills or investing consistently. How does it work? Your money is sent exactly where it needs to go — to pay utilities, your sub-savings account, your rent, whatever — as soon as your paycheck shows up each month. Check out Ramit’s video below to learn exactly how to set it up today. How do I rebalance my All Weather Portfolio?Dalio also suggests rebalancing this portfolio each year in order to maintain the original asset allocation. If you want to know more about portfolio rebalancing, be sure to check out our article on how to rebalance a portfolio. To quickly recap, though, rebalancing your portfolio is the process of modifying your asset allocation as the amount of money in each investment fluctuates with the constantly changing market. And it all boils down to one thing: Asset allocation. This is how much money you invest into certain asset classes in your portfolio, the major ones being stocks, bonds, and cash. To rebalance your All Weather Portfolio, you just have to follow three super simple steps.
Once it’s reverted back to your target asset allocation, congratulations! You’ve successfully rebalanced your portfolio! Always have money to invest in the All Weather PortfolioThe Scottish poet Robert Burns once wrote, “The best laid schemes of mice and men often go awry.” For all you non–former English majors out there, that means you can have your whole life route planned out, but when life throws a wrench in your spokes everything can turn off-course. The All Weather Portfolio was designed to get through the times when the market throws you off-course while making you money during stable ones — and unless you’re a billionaire hedge fund manager with a track record of predicting recessions, you’re not going to be able to anticipate the next one. The best thing YOU can do then is prepare for the worst. That starts with having the money to invest and spend even when the market falters. That’s why we want to offer you the Ultimate Guide to Making Money. In it, we’ve included our best strategies to:
Download a FREE copy of the Ultimate Guide today by entering your name and email below — and start earning money for your All Weather Portfolio today. All Weather Portfolio: 5 questions (and answers) about the mix is a post from: I Will Teach You To Be Rich. Via Finance http://www.rssmix.com/via Blogger http://samsamuelfields.blogspot.com/2018/01/all-weather-portfolio-5-questions-and.html January 11, 2018 at 04:33AM
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