Improving the Dalio/Robbins All-Seasons Portfolio

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nedsaid
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by nedsaid » Thu Nov 29, 2018 3:43 pm

azanon wrote:
Mon Oct 23, 2017 8:52 pm
thejimmysmith wrote:
Mon Oct 23, 2017 7:32 am
Great post. I really came into investing after I read Robbins first book and learned about All Seasons then started doing an investing deep dive. I'm taking my time going through this thread and I apologize if this has already been answered but why no real estate investment trusts in this portfolio?
Without re-reading the thread, a REITs question similar to that did come up. But in short and summary, I tried to reconstruct/estimate a static "all-weather" portfolio based upon the actual paper that's publicly available at Bridgewater, linked in the original post of this thread which I believe is more accurate than the Robbins one. That paper was very revealing as to what asset classes to use and gave strong clues as to how to balance those. Discussion of REITs simply doesn't come up in that paper so I wouldn't have had any basis for their inclusion in my portfolio.
I was curious and I went to Portfolio Visualizer. I compared the Harry Browne Permanent Portfolio with 25% US Stocks, 25% Cash, 25% Long Treasuries, and 25% gold to a modified portfolio adding REITs. Same portfolio except I split the stock portion into two: 12.5% for US Stocks and 12.5% for REITs. The time period was from January 1994 to October 2018. REITs didn't help.

Harry Browne had Compound Annual Rate of Return of 6.28% compared to the modified portfolio with a CAGR of 6.25%. Harry Browne had a standard deviation of 6.02% compared to 6.36% for the modified portfolio. Best year up 18.11% for Harry Browne and 15.25% for the modified portfolio. Worst year down -2.98% for Harry Browne and -5.88% for modified portfolio. REITs not only didn't help but they hurt.

Here is an article where Harry Browne is compared to a 60% US Stocks/40% US Bonds portfolio. Time period was 1972-2014. Balanced portfolio had better performance but with more volatility.
CAGR was 9.56% for Balanced vs. 8.87% for Harry Brown. Standard deviation was 11.66% for Balanced and 7.74% for Harry Browne. Best year was 38.14% for Harry Browne and 28.75% for Balanced. Worst year was -5.43% for Harry Browne and -20.20% for Balanced. That is impressive. The article did say that adding Gold to a portfolio had better risk adjusted returns than adding commodities. The article is 6 pages.

https://seekingalpha.com/article/320632 ... -portfolio

There also gets to be a point where adding more asset classes has diminishing returns. I have made the comment many times that the pizza tastes the same no matter how many slices you cut it into. Yogi Berra once said, "Cut the pizza into 4 slices because I am not hungry enough to eat 6."

So I got even more curious. I split the pie even further. Compared the Harry Browne Portfolio, the Modified Portfolio adding REITS, and a New Improved Portfolio adding both REITs and Commodities, the results got to be really interesting. This time period is from January 2007 to October 2018. The New Improved Portfolio has 12.5% US Stocks, 12.5% REITS, 25% Cash, 25% Long Treasuries, 12.5% Gold, and 12.5% Commodities.

Harry Browne. . . . . . . . . . . . . . . . . . . . . .CAGR 5.59%. .Std Dev 6.76%. .Worst year. .-2.98%
Improved with REITs. . . . . . . . . . . . . . . . . .CAGR 5.15%. .Std Dev 7.54%. .Worst year. .-5.88%
New Improved with REITs and Commodities. . CAGR 3.81%. .Std Dev 7.18%. .Worst Year. .-8.34%

The problem here is that I could only go back here to January 2007 which was close to the end of the commodities boom. If I could have gone back further, the results would have been different.

So adding REITs did not add anything to an All-Weather portfolio. Adding Commodities is a maybe since I could not include the commodities boom from 2000-2007.

The point is, the Harry Browne Permanent Portfolio is remarkably stable and the returns are very acceptable. Pretty darned hard to improve upon. Why it works, I just don't know. Probably part of it is the rebalancing. All my examples were rebalanced once a year.
A fool and his money are good for business.

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azanon
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by azanon » Thu Nov 29, 2018 6:00 pm

nedsaid wrote:
Thu Nov 29, 2018 3:43 pm
The point is, the Harry Browne Permanent Portfolio is remarkably stable and the returns are very acceptable. Pretty darned hard to improve upon. Why it works, I just don't know. Probably part of it is the rebalancing. All my examples were rebalanced once a year.
I like some aspects of the Permanent Portfolio, partially cause it shares some similarities to the Risk Parity Concept. It's just that in general, I think Risk Parity strategies take it one step further in terms of being more quantitative, more open to exotic asset classes/securities that are available for purchase (such as EM bonds or Zero-coupon bonds), and having better risk-balanced precision (weights of asset classes can be fine-tuned with risk parity) instead of just arbitrarily slicing up a pie in 4 equal asset class parts that aren't necessarily risk balanced as well.

I admit what I'm trying to do here is build a quite a bit more aggressive portfolio than a Harry Brown one, because I'm trying to amp up each of the risk parity quadrants in terms of return potential while still trying to maintain the balance between the 4 economic scenarios discussed in the All-Weather Story. If the "real" Bridgewater All-Weather portfolio uses actual leverage, then I see no reason not to try to do that with faux leverage here. Also, I think most of us would want at least the potential to replace some of the expected return offered by more traditional, stock-heavy portfolios.

HEDGEFUNDIE
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by HEDGEFUNDIE » Fri Nov 30, 2018 12:30 am

Azanon, great project you've got going here.

Just a question on your inclusion of local currency EM bonds. Here is a backtest of the oldest fund I could find along with its USD hedged equivalent as well as TSM:

https://www.portfoliovisualizer.com/ass ... ingDays=60

Over the past 12 years, the hedged fund was...:

1. Less correlated with TSM,
2. Less volatile, and
3. Generated higher returns

..than the local currency fund.

I get that the local currency fund is better for USD inflation risk, but you already have TIPs and gold to deal with that, right?

FiberStage
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by FiberStage » Tue Dec 04, 2018 7:29 am

All, thank you for a fantastic read. Great education for a novice like me.

Azanon, with my novice investment status in mind, and considering I'm in my early 30's, gainfully employed, house and cars paid off (got into bitcoin early), would you recommend I apply your latest iteration of the portfolio? I ask because earlier you said you were in your later 50's and were taking more risk out of your portfolio. Another item I'm considering is that I would not be adding any gold into this equation because I was a goldbug for a few years and well, already own a disproportionate amount, which I'm fine with and don't plan to touch for quite a while. I'm really cash heavy right now as I've been trying to figure this out. Also, do you suggest being fully invested of holding cash at the moment. I know this isn't investment advice and but simply ideas to think on.

Advanced thanks to anyone who replies.

TXGator
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by TXGator » Fri Jan 04, 2019 5:44 pm

Just wanted to say I recently started reading Dalio's book and came across thread. Fantastic work, especially with the current market!

amrap
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by amrap » Mon Jan 07, 2019 2:00 pm

Thanks for this work azanon!

I'm trying to implement a similar portfolio and I'd like to adapt it for a 30 years old person that earns cash in USD but lives in the EUR zone (i.e., all expenses and savings in EUR, all income in USD). What would be your suggestions for such a case?

I'm thinking about how to reduce the currency risk, and I doubt between replacing the US bonds ETF for equivalents in EUR or keep the positions but with EUR HEDGED funds.

Also, a second concern I have is about how to deploy the portfolio if one has only cash. I understand this portfolio is designed to grow in any of the 4 economic scenarios, but if you would like to implement it today having the cash in EUR, would you suggest timing it? I mean, for example, buying gold and commodities today, but waiting for the stocks and bonds. The same Dalio has been lately warning about the economy being in the last part of the debt cycle (assets overvalued) and he recommends being more defensive these days.

I would be very grateful for anyone's help!

Kevin K
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by Kevin K » Mon Jan 07, 2019 3:46 pm

Excellent thread!

A site I find far more useful than Portfolio Visualizer for looking at defensive allocations like this is Portfolio Charts. Robbin's Dalio-derived All Seasons is included, but do check out the Golden Butterfly, Permanent Portfolio and PInwheel portfolios too (and compare any of these with the classic 3 fund!). The charts here - especially those showing drawdowns, safe withdrawal rates and the all-important "ulcer index" - are uniquely helpful in showing what it would be like to actually live with an allocation long-term:

https://portfoliocharts.com/portfolios/

Obviously none of these portfolios is as esoteric or complicated as the OP's many excellent ideas but simplicity and ease of rebalancing are certainly worthy of consideration.

columbia
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by columbia » Mon Jan 07, 2019 7:56 pm

azanon wrote:
Thu Nov 29, 2018 6:00 pm
nedsaid wrote:
Thu Nov 29, 2018 3:43 pm
The point is, the Harry Browne Permanent Portfolio is remarkably stable and the returns are very acceptable. Pretty darned hard to improve upon. Why it works, I just don't know. Probably part of it is the rebalancing. All my examples were rebalanced once a year.
I like some aspects of the Permanent Portfolio, partially cause it shares some similarities to the Risk Parity Concept. It's just that in general, I think Risk Parity strategies take it one step further in terms of being more quantitative, more open to exotic asset classes/securities that are available for purchase (such as EM bonds or Zero-coupon bonds), and having better risk-balanced precision (weights of asset classes can be fine-tuned with risk parity) instead of just arbitrarily slicing up a pie in 4 equal asset class parts that aren't necessarily risk balanced as well.

I admit what I'm trying to do here is build a quite a bit more aggressive portfolio than a Harry Brown one, because I'm trying to amp up each of the risk parity quadrants in terms of return potential while still trying to maintain the balance between the 4 economic scenarios discussed in the All-Weather Story. If the "real" Bridgewater All-Weather portfolio uses actual leverage, then I see no reason not to try to do that with faux leverage here. Also, I think most of us would want at least the potential to replace some of the expected return offered by more traditional, stock-heavy portfolios.

As I recall, you dabble in holding some leveraged ETFs. How much concern do you have for something like UPRO folding in the midst of a severe market crash?

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azanon
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by azanon » Tue Jan 08, 2019 8:21 am

columbia wrote:
Mon Jan 07, 2019 7:56 pm
azanon wrote:
Thu Nov 29, 2018 6:00 pm
nedsaid wrote:
Thu Nov 29, 2018 3:43 pm
The point is, the Harry Browne Permanent Portfolio is remarkably stable and the returns are very acceptable. Pretty darned hard to improve upon. Why it works, I just don't know. Probably part of it is the rebalancing. All my examples were rebalanced once a year.
I like some aspects of the Permanent Portfolio, partially cause it shares some similarities to the Risk Parity Concept. It's just that in general, I think Risk Parity strategies take it one step further in terms of being more quantitative, more open to exotic asset classes/securities that are available for purchase (such as EM bonds or Zero-coupon bonds), and having better risk-balanced precision (weights of asset classes can be fine-tuned with risk parity) instead of just arbitrarily slicing up a pie in 4 equal asset class parts that aren't necessarily risk balanced as well.

I admit what I'm trying to do here is build a quite a bit more aggressive portfolio than a Harry Brown one, because I'm trying to amp up each of the risk parity quadrants in terms of return potential while still trying to maintain the balance between the 4 economic scenarios discussed in the All-Weather Story. If the "real" Bridgewater All-Weather portfolio uses actual leverage, then I see no reason not to try to do that with faux leverage here. Also, I think most of us would want at least the potential to replace some of the expected return offered by more traditional, stock-heavy portfolios.

As I recall, you dabble in holding some leveraged ETFs. How much concern do you have for something like UPRO folding in the midst of a severe market crash?
That is not correct. Going on memory, I believe i made reference at least once to trying to design a portfolio using "faux" leverage since reportedly the real Bridgewater All Weather portfolio uses real leverage. The best example of this in the end portfolio was EDV, which uses 30-yr zero coupon bonds. The long duration certainly amps up the volatility, but they're not leveraged in any way.

I, personally, would not be comfortable with a leveraged portfolio with the exception of if I were somehow allowed to invest in the Bridge-water All Weather one.

Make no mistake - the very design of the portfolio is intended to minimize risk. If you're looking for something low risk, this is a potential consideration. If maximizing (expected) returns is more important to you, I'd discourage consideration of this one.

Mchan
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by Mchan » Thu Jan 10, 2019 6:35 pm

Hi,
I am having some confusion regarding the growth/inflation matrix. Am I correct that in the white paper, the states are not shown as Inflation/growth, inflation/falling growth, falling inflation/growth, and falling inflation/falling growth? For an example scenario, what happens to equities where there is both rising growth, but also rising inflation? Is it it a wash, or does it do well/poorly? If I’m right about the matrix not showing the scenario above, doesn’t that mean there are actually 9 states, the extra states coming from the combinations that include either flat growth, or 0 inflation. Apologies if this is a silly question, but I am very new to this.

Appreciate anyone helping me out on this, as this investment style seems very attractive, and I want to learn more about it!

amrap
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by amrap » Sat Jan 12, 2019 3:14 am

Mchan wrote:
Thu Jan 10, 2019 6:35 pm
Hi,
I am having some confusion regarding the growth/inflation matrix. Am I correct that in the white paper, the states are not shown as Inflation/growth, inflation/falling growth, falling inflation/growth, and falling inflation/falling growth? For an example scenario, what happens to equities where there is both rising growth, but also rising inflation? Is it it a wash, or does it do well/poorly? If I’m right about the matrix not showing the scenario above, doesn’t that mean there are actually 9 states, the extra states coming from the combinations that include either flat growth, or 0 inflation. Apologies if this is a silly question, but I am very new to this.

Appreciate anyone helping me out on this, as this investment style seems very attractive, and I want to learn more about it!
Hi Mchan,

First, it is important to understand that the 4 seasons (states) are relative to the current market expectations (not absolute) and therefore the 4 seasons are:
  • Higher than expected inflation (rising prices)
  • Lower than expected inflation (or deflation)
  • Higher than expected economic growth
  • Lower than expected economic growth
For example, the "Higher than expected economic growth" season is not about if the economy will grow but if the economy will grow more than what is expected by the market today, which is reflected on assets prices. This vision is based on the efficient-market hypothesis (EMH, plenty of info on the internet).

Regarding your 9 states concern, these seasons are considered to be independent, so there are only 4 possible states. The fact that 2 states can happen at the same time doesn't mean we have a new state with a different set of assets doing well in it.

By allocating in a balance those assets that do well in specific seasons, the portfolio aims to offer reasonable returns whatever happens in the future while minimizing risks. So, using your example with equities:
  • if the economy grows more than expected they will do well (independent effect)
  • if inflation grows more than expected they won't be considerably affected (not in the quadrant). Instead, if inflation goes below expectations, equities will suffer (independent effect)
  • Whether the resulting effect on equities is positive or negative will depend on the particular circumstances
  • If this scenario happens, the return of the portfolio will rely on the rest of assets allocated to these quadrants
I hope this solves your doubts.

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hdas
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by hdas » Sat Jan 12, 2019 8:52 am

azanon wrote:
Wed Dec 21, 2016 8:28 am

Edit (9/5/2018)

I took a closer look at estimating long-term standard deviation for each asset class (using Portfoliovisualizer), and the weight/loading to each of the 4 economic scenarios discussed in the Bridgewater "The All Weather Story", and realized that the overall weightings still weren't as optimized as they could be. I was able to drop the spread between the highest risk quadrant and the lowest risk quadrant by 67% by making one change: Dropping VOE by 5% to 20%, and raising LTPZ by that same 5% to 35%. This will, of course, lower overall portfolio expected return but, again, the aim here was to create an improved, non-leveraged risk parity portfolio. It's expected return "is what it is". Anyway, by my revised calculation, the spread in risk between the riskiest quadrant, and the least risky quadrant is now only 7%, or 7% more risky.

Revised portfolio:
20% Vanguard Mid-Cap Vaue ETF (VOE) 0.07%
10% Market Vectors Emerging Mkts Local ETF (EMLC) 0.30% (note the ER dropped since last year)
20% Vanguard Extended Duration Treasury ETF (EDV) 0.07%
35% PIMCO 15+ Year US TIPS ETF (LTPZ) 0.20%
7.5% ETFS Bloomberg All Commodity Strategy (BCI) 0.29%
7.5% iShares Gold Trust (IAU) 0.25%
Good Project!. Some quick notes

1. I believe risk parity unlevered might be the best approach to conserve wealth.
2. In order to build wealth, leverage is necessary. In your model, not being able to lever low vol assets hurts you. Do look into the fixed income leveraged ETF’s
3. Since you are doing some naive optimization, why not learn from the more formal approaches?
4. What happens when the standard deviation and covariance are calculated weekly or daily instead of monthly?

Cheers :greedy
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

Mchan
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by Mchan » Sat Jan 12, 2019 11:50 am

@ amrap, this was extremely helpful. Thank you so much, understanding it as 4 independent states is really helpful!
amrap wrote:
Sat Jan 12, 2019 3:14 am
Mchan wrote:
Thu Jan 10, 2019 6:35 pm
Hi,
I am having some confusion regarding the growth/inflation matrix. Am I correct that in the white paper, the states are not shown as Inflation/growth, inflation/falling growth, falling inflation/growth, and falling inflation/falling growth? For an example scenario, what happens to equities where there is both rising growth, but also rising inflation? Is it it a wash, or does it do well/poorly? If I’m right about the matrix not showing the scenario above, doesn’t that mean there are actually 9 states, the extra states coming from the combinations that include either flat growth, or 0 inflation. Apologies if this is a silly question, but I am very new to this.

Appreciate anyone helping me out on this, as this investment style seems very attractive, and I want to learn more about it!
Hi Mchan,

First, it is important to understand that the 4 seasons (states) are relative to the current market expectations (not absolute) and therefore the 4 seasons are:
  • Higher than expected inflation (rising prices)
  • Lower than expected inflation (or deflation)
  • Higher than expected economic growth
  • Lower than expected economic growth
For example, the "Higher than expected economic growth" season is not about if the economy will grow but if the economy will grow more than what is expected by the market today, which is reflected on assets prices. This vision is based on the efficient-market hypothesis (EMH, plenty of info on the internet).

Regarding your 9 states concern, these seasons are considered to be independent, so there are only 4 possible states. The fact that 2 states can happen at the same time doesn't mean we have a new state with a different set of assets doing well in it.

By allocating in a balance those assets that do well in specific seasons, the portfolio aims to offer reasonable returns whatever happens in the future while minimizing risks. So, using your example with equities:
  • if the economy grows more than expected they will do well (independent effect)
  • if inflation grows more than expected they won't be considerably affected (not in the quadrant). Instead, if inflation goes below expectations, equities will suffer (independent effect)
  • Whether the resulting effect on equities is positive or negative will depend on the particular circumstances
  • If this scenario happens, the return of the portfolio will rely on the rest of assets allocated to these quadrants
I hope this solves your doubts.

Topic Author
azanon
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Joined: Mon Nov 07, 2011 10:34 am

Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by azanon » Sat Jan 12, 2019 12:28 pm

hdas wrote:
Sat Jan 12, 2019 8:52 am
azanon wrote:
Wed Dec 21, 2016 8:28 am

Edit (9/5/2018)

I took a closer look at estimating long-term standard deviation for each asset class (using Portfoliovisualizer), and the weight/loading to each of the 4 economic scenarios discussed in the Bridgewater "The All Weather Story", and realized that the overall weightings still weren't as optimized as they could be. I was able to drop the spread between the highest risk quadrant and the lowest risk quadrant by 67% by making one change: Dropping VOE by 5% to 20%, and raising LTPZ by that same 5% to 35%. This will, of course, lower overall portfolio expected return but, again, the aim here was to create an improved, non-leveraged risk parity portfolio. It's expected return "is what it is". Anyway, by my revised calculation, the spread in risk between the riskiest quadrant, and the least risky quadrant is now only 7%, or 7% more risky.

Revised portfolio:
20% Vanguard Mid-Cap Vaue ETF (VOE) 0.07%
10% Market Vectors Emerging Mkts Local ETF (EMLC) 0.30% (note the ER dropped since last year)
20% Vanguard Extended Duration Treasury ETF (EDV) 0.07%
35% PIMCO 15+ Year US TIPS ETF (LTPZ) 0.20%
7.5% ETFS Bloomberg All Commodity Strategy (BCI) 0.29%
7.5% iShares Gold Trust (IAU) 0.25%
Good Project!. Some quick notes

1. I believe risk parity unlevered might be the best approach to conserve wealth.
2. In order to build wealth, leverage is necessary. In your model, not being able to lever low vol assets hurts you. Do look into the fixed income leveraged ETF’s
3. Since you are doing some naive optimization, why not learn from the more formal approaches?
4. What happens when the standard deviation and covariance are calculated weekly or daily instead of monthly?

Cheers :greedy
Responses to each question:
1. I agree, which is why I undertook the project.
2. No it is not necessary as is easily explained. 85% of the portfolio has an expected return well above inflation rate on their own (As we know, wealth is built whenever real return exceeds 0%), and the remaining 15% will as well once rebalancing with the other asset classes is taken into consideration.I'll add that there is an epidemic in the general mindset of the average investment professional to design and implement for various individuals very aggressive, equity dominated portfolios that are completely unnecessary if one simply lives well below their means and saves 15%+ of gross income over a working career.
3. I'll stick with Ray Dalio, Bridgewater Papers, and former Bridgewater employees (one posted, Appianroad.com, etc). Since correlations change over time, it's an estimation anyway. You're welcome to do whatever you want though.
4. The data becomes gradually less useful the narrower the window of time.

garlandwhizzer
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by garlandwhizzer » Sat Jan 12, 2019 9:11 pm

These portfolios all have a large allocation to long duration Treasuries/TIPS. Long duration bonds have done very well for the last 3 - 4 decades and therefore shine on backtesting. At the present time, however, they carry great duration risk which is far in excess of their modest current yield in my opinion. The future of the long bonds is very unlikely to produce the stellar returns like the past 35 years in my opinion. I believe these portfolios are derived from backtesting in an entirely different era and will fail to beat a standard balanced portfolio on a risk adjusted basis going forward. Beware when the media stars become your source of financial expertise.

Garland Whizzer

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azanon
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by azanon » Sun Jan 13, 2019 12:02 am

garlandwhizzer wrote:
Sat Jan 12, 2019 9:11 pm
These portfolios all have a large allocation to long duration Treasuries/TIPS. Long duration bonds have done very well for the last 3 - 4 decades and therefore shine on backtesting. At the present time, however, they carry great duration risk which is far in excess of their modest current yield in my opinion. The future of the long bonds is very unlikely to produce the stellar returns like the past 35 years in my opinion. I believe these portfolios are derived from backtesting in an entirely different era and will fail to beat a standard balanced portfolio on a risk adjusted basis going forward. Beware when the media stars become your source of financial expertise.

Garland Whizzer
Remaining portions of the portfolio (and the CPI ties of the TIPS you mentioned) are designed to offset the risk of the duration of those bonds. Yes, this portfolio is unlikely to produce stellar returns going forward in comparison to the past, as are most other portfolios as well (for different reasons). You might have noticed that stocks aren't cheap either. Ray Dalio is hardly a media star. Oh, you meant Robbins? :mrgreen: We know he's irrelevant with respect to the design of the portfolio, Garland. He'd tell you that too, if asked.

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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by boglerdude » Sun Jan 13, 2019 12:26 am

> the "Higher than expected economic growth" season is not about if the economy will grow but if the economy will grow more than what is expected by the market today, which is reflected on assets prices.

So if inflation and growth meet market expectations, you only profit off the dividend yield of the market? (Currently 2.09%)

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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by LadyGeek » Sun Jan 13, 2019 9:12 am

New member FabrizioC has a question which I've moved into a new thread. See: Dalio/Robbins All-Seasons Portfolio [Europe]
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

30sep16
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by 30sep16 » Thu Jan 17, 2019 9:42 pm

garlandwhizzer wrote:
Sat Jan 12, 2019 9:11 pm
These portfolios all have a large allocation to long duration Treasuries/TIPS. Long duration bonds have done very well for the last 3 - 4 decades and therefore shine on backtesting. At the present time, however, they carry great duration risk which is far in excess of their modest current yield in my opinion. The future of the long bonds is very unlikely to produce the stellar returns like the past 35 years in my opinion. I believe these portfolios are derived from backtesting in an entirely different era and will fail to beat a standard balanced portfolio on a risk adjusted basis going forward. Beware when the media stars become your source of financial expertise.

Garland Whizzer
AQR published a paper called "Commodities for the Long Run" that looked at the optimal mix of stocks, bonds and commodities, going back to the 1800s! And they concluded the ideal ratio was 29% stocks, 54% bonds, 17% commodities. Almost the same as Dalio/Robbins. So there's nothing about the past 35 years that's unduly influencing that asset allocation.

The biggest risk most Bogleheads are oblivious to is that during those 200+ years, every 50 years or so stocks and bonds collapse at the same time. If you're not holding an alternative then, you are nearly wiped out.

amrap
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by amrap » Fri Feb 08, 2019 3:21 pm

Hi Bogleheads,

Lately, we've come to define a specific all-seasons portfolio for Europe ( Dalio/Robbins All-Seasons Portfolio [Europe]) and I would like to ask the forum experts to have a look and, if you are so kind, give us some feedback. Most of our doubts are basic finance, nothing exclusively related to the European scenario, so your inputs would be priceless.

Thanks in advance!

elderwise
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by elderwise » Fri Feb 08, 2019 4:02 pm

azanon, just curious how is the portfolio mix doing for you ? i see your last update was some time back.

Topic Author
azanon
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by azanon » Fri Feb 08, 2019 5:42 pm

2018 wasn't a good year for the portfolio, but I don't see that as any cause for alarm. With pretty much any portfolio, I think you'd need 10 years (if not more) before one could start drawing significant conclusions.

The other observation owning the portfolio is that although individual asset classes are quite volatile, the portfolio as a whole has very modest volatility. So it's best to just focus on the overall portfolio performance over time.

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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by goblue100 » Sat Feb 09, 2019 10:28 am

Just for grins, I put the updated portfolio in portfolio visualizer compared to a 3 fund implementation:
https://www.portfoliovisualizer.com/bac ... tion9_2=25

It wasn't a good year for either, but the 3 fund lost a little less than this implmentation of the all weather. Let me know if I messed anything up inputting into PV.

For more grins, I found a link to something that is more like the original Dalio all weather (portfolio 3). It did hold up a little better in a bad year:
https://www.portfoliovisualizer.com/bac ... on13_3=7.5
Financial planners are savers. They want us to be 95 percent confident we can finance a 30-year retirement even though there is an 82 percent probability of being dead by then. - Scott Burns

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azanon
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by azanon » Sat Feb 09, 2019 1:30 pm

goblue100 wrote:
Sat Feb 09, 2019 10:28 am
Just for grins, I put the updated portfolio in portfolio visualizer compared to a 3 fund implementation:
https://www.portfoliovisualizer.com/bac ... tion9_2=25

It wasn't a good year for either, but the 3 fund lost a little less than this implmentation of the all weather. Let me know if I messed anything up inputting into PV.

For more grins, I found a link to something that is more like the original Dalio all weather (portfolio 3). It did hold up a little better in a bad year:
https://www.portfoliovisualizer.com/bac ... on13_3=7.5
Two things I'd note/point out. The three fund uses Total International, not EAFE. And the other thing is, if you're going to compare an all-weather/Risk parity portfolio to any conventional portfolio (like 3 fund), it's important to note the standard deviation as well (SD was lower for both all-weather portfolios). If you don't care at all about standard deviation (which is what is typically used to measure risk), I'd discourage someone from using this portfolio since this one aims to maximize risk-adjusted returns, as opposed to just returns. Going by the numbers (and adjusting EFA to total international) that was 67% more standard deviation to lose ~ one less percent.

So that standard deviation is something to think about even in a year where it lost more than 3 fund; Yes it lost more, but it was still not as bumpy of a ride.

Now if the standard deviation of either fund actually got higher than a 3 Fund over a long period of time, then "Houston we've got a problem" because it isn't working right or as designed.

One final thing I like to see; lower correlation of this portfolio to the US Market than the conventional Robbins portfolio. Specifically, if the Robbins portfolio is only doing well when the US market is doing well, then it's not much of a Risk Parity portfolio.

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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by DB2 » Sat Feb 09, 2019 2:50 pm

azanon wrote:
Sat Feb 09, 2019 1:30 pm
goblue100 wrote:
Sat Feb 09, 2019 10:28 am
Just for grins, I put the updated portfolio in portfolio visualizer compared to a 3 fund implementation:
https://www.portfoliovisualizer.com/bac ... tion9_2=25

It wasn't a good year for either, but the 3 fund lost a little less than this implmentation of the all weather. Let me know if I messed anything up inputting into PV.

For more grins, I found a link to something that is more like the original Dalio all weather (portfolio 3). It did hold up a little better in a bad year:
https://www.portfoliovisualizer.com/bac ... on13_3=7.5
Two things I'd note/point out. The three fund uses Total International, not EAFE. And the other thing is, if you're going to compare an all-weather/Risk parity portfolio to any conventional portfolio (like 3 fund), it's important to note the standard deviation as well (SD was lower for both all-weather portfolios). If you don't care at all about standard deviation (which is what is typically used to measure risk), I'd discourage someone from using this portfolio since this one aims to maximize risk-adjusted returns, as opposed to just returns. Going by the numbers (and adjusting EFA to total international) that was 67% more standard deviation to lose ~ one less percent.

So that standard deviation is something to think about even in a year where it lost more than 3 fund; Yes it lost more, but it was still not as bumpy of a ride.

Now if the standard deviation of either fund actually got higher than a 3 Fund over a long period of time, then "Houston we've got a problem" because it isn't working right or as designed.

One final thing I like to see; lower correlation of this portfolio to the US Market than the conventional Robbins portfolio. Specifically, if the Robbins portfolio is only doing well when the US market is doing well, then it's not much of a Risk Parity portfolio.
True, but International stocks (especially EM) seems to be more volatile/risky with less overall return to date. Going forward might be another matter, but just saying.

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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by goblue100 » Sun Feb 10, 2019 10:49 am

I changed EFA to Vanguard total international. Made little difference.
https://www.portfoliovisualizer.com/bac ... on13_3=7.5
Financial planners are savers. They want us to be 95 percent confident we can finance a 30-year retirement even though there is an 82 percent probability of being dead by then. - Scott Burns

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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by raven15 » Wed Mar 06, 2019 1:31 am

What about SGOL (Aberdeen Standard Physical Swiss Gold Shares), at 0.17% expense ratio, in place of IAU?

Fewer assets under management, but has had stable AUM for as long as I recall (which is since 2013 when I joined my employer retirement plan where it had no-fee trades).
It's Time. Adding Interest.

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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by azanon » Wed Mar 06, 2019 9:01 am

raven15 wrote:
Wed Mar 06, 2019 1:31 am
What about SGOL (Aberdeen Standard Physical Swiss Gold Shares), at 0.17% expense ratio, in place of IAU?

Fewer assets under management, but has had stable AUM for as long as I recall (which is since 2013 when I joined my employer retirement plan where it had no-fee trades).
Both SGOL and GLD would be reasonable substitutes for IAU, for different reasons. While price was certainly a strong factor I used in making ETF selections, I didn't necessarily consider it a be-all-end-all, especially if it was only a few bp difference. IAU was the editor's pick choice in the segment at etf.com with also 13x times the AUM of SGOL, so I leaned that direction.

Of the 6 ETFs in the final portfolio, I only have very strong preferences for EDV, LTPZ, and EMLC (for reasons previously discussed). The other 3 (especially the 2 commodity ETFs) have reasonable alternatives.

Finally, I should mention when IAU was initially selected, it was the cheapest of the 3. SGOL used to be 0.39% ER (see: https://seekingalpha.com/article/382584 ... d-gold-etf )

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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by DB2 » Thu Mar 07, 2019 12:56 pm

azanon wrote:
Wed Mar 06, 2019 9:01 am
raven15 wrote:
Wed Mar 06, 2019 1:31 am
What about SGOL (Aberdeen Standard Physical Swiss Gold Shares), at 0.17% expense ratio, in place of IAU?

Fewer assets under management, but has had stable AUM for as long as I recall (which is since 2013 when I joined my employer retirement plan where it had no-fee trades).
Both SGOL and GLD would be reasonable substitutes for IAU, for different reasons. While price was certainly a strong factor I used in making ETF selections, I didn't necessarily consider it a be-all-end-all, especially if it was only a few bp difference. IAU was the editor's pick choice in the segment at etf.com with also 13x times the AUM of SGOL, so I leaned that direction.

Of the 6 ETFs in the final portfolio, I only have very strong preferences for EDV, LTPZ, and EMLC (for reasons previously discussed). The other 3 (especially the 2 commodity ETFs) have reasonable alternatives.

Finally, I should mention when IAU was initially selected, it was the cheapest of the 3. SGOL used to be 0.39% ER (see: https://seekingalpha.com/article/382584 ... d-gold-etf )
This is a more general question: with a fund that has a higher AUM, what is the benefit of it?

There is a gold mining ETF I like a lot (GOAU) but the AUM is very small as the fund has only been around for about two years. Is this more risky than, say, GDX which has a much larger AUM? GOAU has outperformed it and it's been far less volatile by comparison.

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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by rich126 » Thu Mar 07, 2019 1:44 pm

As others have said, thanks for doing this and I appreciate the info.

A couple of minor suggestions. First I'd rather see max draw down and not worst year. Your worst year could be -15% but the max draw down could be much higher (-30%+) and the draw down is what will scare people away from a strategy (rightly or wrongly).

Secondly, I always prefer to see the real return and not just a CAGR.

As far as the portfolio goes, I'm just not a fan of TIPs so I could never put 30+% in that sector.

Anyhow, thanks.

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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by azanon » Thu Mar 07, 2019 3:23 pm

DB2 wrote:
Thu Mar 07, 2019 12:56 pm
azanon wrote:
Wed Mar 06, 2019 9:01 am
raven15 wrote:
Wed Mar 06, 2019 1:31 am
What about SGOL (Aberdeen Standard Physical Swiss Gold Shares), at 0.17% expense ratio, in place of IAU?

Fewer assets under management, but has had stable AUM for as long as I recall (which is since 2013 when I joined my employer retirement plan where it had no-fee trades).
Both SGOL and GLD would be reasonable substitutes for IAU, for different reasons. While price was certainly a strong factor I used in making ETF selections, I didn't necessarily consider it a be-all-end-all, especially if it was only a few bp difference. IAU was the editor's pick choice in the segment at etf.com with also 13x times the AUM of SGOL, so I leaned that direction.

Of the 6 ETFs in the final portfolio, I only have very strong preferences for EDV, LTPZ, and EMLC (for reasons previously discussed). The other 3 (especially the 2 commodity ETFs) have reasonable alternatives.

Finally, I should mention when IAU was initially selected, it was the cheapest of the 3. SGOL used to be 0.39% ER (see: https://seekingalpha.com/article/382584 ... d-gold-etf )
This is a more general question: with a fund that has a higher AUM, what is the benefit of it?

There is a gold mining ETF I like a lot (GOAU) but the AUM is very small as the fund has only been around for about two years. Is this more risky than, say, GDX which has a much larger AUM? GOAU has outperformed it and it's been far less volatile by comparison.
> Regarding higher AUM, generally there's correlation between better tradeability, and I personally would just assume quite a bit more oversight of the ETF, the higher the AUM. And probably most of all (because this happened to me), it's less likely to get shutdown due to failure.

> Gold mining ETFs are not recommended for this portfolio. I believe taguscove (former bridgewater employee) had a good explanation earlier in the thread why Gold miners (stocks) is not an appropriate substitute for a gold futures ETF. So just browse for that if you wanted more background on that.

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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by azanon » Thu Mar 07, 2019 3:34 pm

rich126 wrote:
Thu Mar 07, 2019 1:44 pm
As others have said, thanks for doing this and I appreciate the info.

A couple of minor suggestions. First I'd rather see max draw down and not worst year. Your worst year could be -15% but the max draw down could be much higher (-30%+) and the draw down is what will scare people away from a strategy (rightly or wrongly).

Secondly, I always prefer to see the real return and not just a CAGR.

As far as the portfolio goes, I'm just not a fan of TIPs so I could never put 30+% in that sector.

Anyhow, thanks.
> I don't recall why I (if it was me) would have posted some of the portfolio visualizer stats and not others. I actually prefer to look at all of the available statistics, and certainly can appreciate needing/wanting to estimate historic real return. It wouldn't take much effort to plug in proxies for the portfolio at portfolio visualizer and get all of those stats that were left off. I can tell you it'll come out quite favorable on real return (backtested at least) (4%+ real historical, easy, but going forward perhaps not, who knows...), and the "max drawdown" will be extremely competitive with most portfolios given the design.

> If you're not a fan of TIPS, then yeah this one won't be for you. That is, unless perhaps Ray Dalio's upcoming book reveals some way or reasoning why they're not needed in the portfolio. As I said from the outset, I remain very curious or confused why the portfolio Dalio gave Robbins didn't include any TIPS when its quite clear that they're referenced in both the "All Weather Story", and "Appianroad" is also using heavy doses of them as well.

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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by DesertDiva » Thu Mar 07, 2019 4:12 pm

Sounds like a great thread for the DalioRobbinsHead forum
🗣🤡👽

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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by azanon » Thu Mar 07, 2019 5:05 pm

I think 133 posts, and 1.5 years later, you can feel fairly certain the thread conforms to forum rules.

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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by goblue100 » Fri Mar 08, 2019 7:35 am

azanon wrote:
Thu Mar 07, 2019 5:05 pm
I think 133 posts, and 1.5 years later, you can feel fairly certain the thread conforms to forum rules.
I would further say, there is no difference between the Three fund portfolio thread and this one. They both use Boglehead principles to construct a portfolio to meet a goal. This thread is more forum worthy than about 80% of the current active threads.
Financial planners are savers. They want us to be 95 percent confident we can finance a 30-year retirement even though there is an 82 percent probability of being dead by then. - Scott Burns

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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by EfficientInvestor » Fri Mar 08, 2019 2:32 pm

Some have pointed out that the All-Seasons portfolio and the risk-parity concept is not applicable to them at the moment because it is less of a wealth-building portfolio and more of a wealth-sustaining one. I would counter by saying that while that may be true about the base portfolio, people should consider how to still apply the risk-parity idea to their own investing needs. If you apply external leverage to the base all-seasons portfolio, you will likely be better off than sticking with a stock heavy portfolio that you think will get you the type of higher returns you are looking for. Consider this backtest that takes into account the cost of borrowing in a margin account from Interactive Brokers via a 1.5% draw per year on borrowed funds along with a negative cash position to represent the fed fund/libor rate:

https://www.portfoliovisualizer.com/bac ... on6_1=-100

Dec 2002 - Feb 2019
2X All-Seasons - CAGR = 12.3%, SD = 15.5%, Max DD = -27.3%
S&P 500 - CAGR = 9.0%, SD = 13.5%, Max DD = -51.0%

In summary, my recommendation for improving the All-Seasons portfolio would be to add external leverage if you don't think the base portfolio has enough return potential to meet your needs.

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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by DonIce » Fri Mar 08, 2019 7:05 pm

EfficientInvestor wrote:
Fri Mar 08, 2019 2:32 pm
Some have pointed out that the All-Seasons portfolio and the risk-parity concept is not applicable to them at the moment because it is less of a wealth-building portfolio and more of a wealth-sustaining one. I would counter by saying that while that may be true about the base portfolio, people should consider how to still apply the risk-parity idea to their own investing needs. If you apply external leverage to the base all-seasons portfolio, you will likely be better off than sticking with a stock heavy portfolio that you think will get you the type of higher returns you are looking for. Consider this backtest that takes into account the cost of borrowing in a margin account from Interactive Brokers via a 1.5% draw per year on borrowed funds along with a negative cash position to represent the fed fund/libor rate:

https://www.portfoliovisualizer.com/bac ... on6_1=-100

Dec 2002 - Feb 2019
2X All-Seasons - CAGR = 12.3%, SD = 15.5%, Max DD = -27.3%
S&P 500 - CAGR = 9.0%, SD = 13.5%, Max DD = -51.0%

In summary, my recommendation for improving the All-Seasons portfolio would be to add external leverage if you don't think the base portfolio has enough return potential to meet your needs.
Seems cheaper to do this with rolling futures contracts, no?

Use /ES to represent your equity allocation
Use /ZN (for example) to represent your US treasuries
and then hold the small commodity and gold allocations in ETFs (holding them in futures contracts too would only be applicable for a very large portfolio)

For example:
1 ES contract (notional ~$140k)
3 ZN contracts (notional ~$375k)
$35k of IAU shares
$35k of USCI shares
$225k in T-bills (if you want to keep the leverage ratio at 2x)

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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by interestediniras » Fri Mar 08, 2019 7:57 pm

DonIce: How do you incrementally increase the size of a leveraged portfolio based on futures by a small number e.g. 5k from your monthly paycheck? One thing really holding me back from jumping on the futures train is the apparent difficulty of handling the large contract sizes.

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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by EfficientInvestor » Fri Mar 08, 2019 8:00 pm

DonIce wrote:
Fri Mar 08, 2019 7:05 pm
EfficientInvestor wrote:
Fri Mar 08, 2019 2:32 pm
Some have pointed out that the All-Seasons portfolio and the risk-parity concept is not applicable to them at the moment because it is less of a wealth-building portfolio and more of a wealth-sustaining one. I would counter by saying that while that may be true about the base portfolio, people should consider how to still apply the risk-parity idea to their own investing needs. If you apply external leverage to the base all-seasons portfolio, you will likely be better off than sticking with a stock heavy portfolio that you think will get you the type of higher returns you are looking for. Consider this backtest that takes into account the cost of borrowing in a margin account from Interactive Brokers via a 1.5% draw per year on borrowed funds along with a negative cash position to represent the fed fund/libor rate:

https://www.portfoliovisualizer.com/bac ... on6_1=-100

Dec 2002 - Feb 2019
2X All-Seasons - CAGR = 12.3%, SD = 15.5%, Max DD = -27.3%
S&P 500 - CAGR = 9.0%, SD = 13.5%, Max DD = -51.0%

In summary, my recommendation for improving the All-Seasons portfolio would be to add external leverage if you don't think the base portfolio has enough return potential to meet your needs.
Seems cheaper to do this with rolling futures contracts, no?

Use /ES to represent your equity allocation
Use /ZN (for example) to represent your US treasuries
and then hold the small commodity and gold allocations in ETFs (holding them in futures contracts too would only be applicable for a very large portfolio)

For example:
1 ES contract (notional ~$140k)
3 ZN contracts (notional ~$375k)
$35k of IAU shares
$35k of USCI shares
$225k in T-bills (if you want to keep the leverage ratio at 2x)
Agreed, but it only makes sense to do so if you have $250k+ to implement such a strategy. For those like me that are still working up to those kind of portfolio sizes, margin or leveraged ETFs will have to make due.

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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by DonIce » Fri Mar 08, 2019 8:27 pm

interestediniras wrote:
Fri Mar 08, 2019 7:57 pm
DonIce: How do you incrementally increase the size of a leveraged portfolio based on futures by a small number e.g. 5k from your monthly paycheck? One thing really holding me back from jumping on the futures train is the apparent difficulty of handling the large contract sizes.
Just add holdings as ETFs until you've built up enough to buy one more futures contract. You can adjust the treasury bill holdings to maintain a fairly constant leverage ratio.

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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by DonIce » Fri Mar 08, 2019 8:30 pm

EfficientInvestor wrote:
Fri Mar 08, 2019 8:00 pm
Agreed, but it only makes sense to do so if you have $250k+ to implement such a strategy. For those like me that are still working up to those kind of portfolio sizes, margin or leveraged ETFs will have to make due.
By the time you've got enough to get a good margin rate from IB as listed in your example, your account is pretty much big enough to use the futures contracts, no?

My portfolio is still small right now too and invested in more conventional 80/20 stocks/bonds unleveraged but I'm investigating a strategy similar to what I mentioned above for once it gets big enough (1-2 years out probably).
Last edited by DonIce on Fri Mar 08, 2019 8:41 pm, edited 1 time in total.

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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by EfficientInvestor » Fri Mar 08, 2019 8:36 pm

DonIce wrote:
Fri Mar 08, 2019 8:30 pm
EfficientInvestor wrote:
Fri Mar 08, 2019 8:00 pm
Agreed, but it only makes sense to do so if you have $250k+ to implement such a strategy. For those like me that are still working up to those kind of portfolio sizes, margin or leveraged ETFs will have to make due.
By the time you've got enough to get a good margin rate from IB as listed in your example, your account is pretty much big enough to use the futures contracts, no?
The backtest I posted is based on their highest rates which apply to those with an account under $100k. For anything between $0 - $100k, they charge the BM rate (fed fund/libor) + 1.5%. A breakdown of their rates is at the link below.
https://www.interactivebrokers.com/en/index.php?f=1595

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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by DonIce » Fri Mar 08, 2019 8:55 pm

EfficientInvestor wrote:
Fri Mar 08, 2019 8:36 pm
DonIce wrote:
Fri Mar 08, 2019 8:30 pm
EfficientInvestor wrote:
Fri Mar 08, 2019 8:00 pm
Agreed, but it only makes sense to do so if you have $250k+ to implement such a strategy. For those like me that are still working up to those kind of portfolio sizes, margin or leveraged ETFs will have to make due.
By the time you've got enough to get a good margin rate from IB as listed in your example, your account is pretty much big enough to use the futures contracts, no?
The backtest I posted is based on their highest rates which apply to those with an account under $100k. For anything between $0 - $100k, they charge the BM rate (fed fund/libor) + 1.5%. A breakdown of their rates is at the link below.
https://www.interactivebrokers.com/en/index.php?f=1595
Oh, right, thanks. I guess I never even considered an account less than $100k at IB cause of their monthly fees if your account balance is less than $100k and you don't do enough trade commissions.

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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by EfficientInvestor » Fri Mar 08, 2019 9:08 pm

DonIce wrote:
Fri Mar 08, 2019 8:55 pm
EfficientInvestor wrote:
Fri Mar 08, 2019 8:36 pm
DonIce wrote:
Fri Mar 08, 2019 8:30 pm
EfficientInvestor wrote:
Fri Mar 08, 2019 8:00 pm
Agreed, but it only makes sense to do so if you have $250k+ to implement such a strategy. For those like me that are still working up to those kind of portfolio sizes, margin or leveraged ETFs will have to make due.
By the time you've got enough to get a good margin rate from IB as listed in your example, your account is pretty much big enough to use the futures contracts, no?
The backtest I posted is based on their highest rates which apply to those with an account under $100k. For anything between $0 - $100k, they charge the BM rate (fed fund/libor) + 1.5%. A breakdown of their rates is at the link below.
https://www.interactivebrokers.com/en/index.php?f=1595
Oh, right, thanks. I guess I never even considered an account less than $100k at IB cause of their monthly fees if your account balance is less than $100k and you don't do enough trade commissions.
That's a very good point. Thank you for pointing that out. For an account value of $10k, their $10/mo fee would be another ~1% drag on the portfolio. Yikes! Interestingly enough, even if you subtract 1% from the results I showed earlier, the numbers still look good relative to the S&P 500. Regardless, this perhaps gives more reason to use leveraged ETFs instead if you have a limited portfolio size.

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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by EfficientInvestor » Fri Mar 08, 2019 9:50 pm

EfficientInvestor wrote:
Fri Mar 08, 2019 9:08 pm
DonIce wrote:
Fri Mar 08, 2019 8:55 pm
EfficientInvestor wrote:
Fri Mar 08, 2019 8:36 pm
DonIce wrote:
Fri Mar 08, 2019 8:30 pm
EfficientInvestor wrote:
Fri Mar 08, 2019 8:00 pm
Agreed, but it only makes sense to do so if you have $250k+ to implement such a strategy. For those like me that are still working up to those kind of portfolio sizes, margin or leveraged ETFs will have to make due.
By the time you've got enough to get a good margin rate from IB as listed in your example, your account is pretty much big enough to use the futures contracts, no?
The backtest I posted is based on their highest rates which apply to those with an account under $100k. For anything between $0 - $100k, they charge the BM rate (fed fund/libor) + 1.5%. A breakdown of their rates is at the link below.
https://www.interactivebrokers.com/en/index.php?f=1595
Oh, right, thanks. I guess I never even considered an account less than $100k at IB cause of their monthly fees if your account balance is less than $100k and you don't do enough trade commissions.
That's a very good point. Thank you for pointing that out. For an account value of $10k, their $10/mo fee would be another ~1% drag on the portfolio. Yikes! Interestingly enough, even if you subtract 1% from the results I showed earlier, the numbers still look good relative to the S&P 500. Regardless, this perhaps gives more reason to use leveraged ETFs instead if you have a limited portfolio size.
This exchange about Interactive Broker (IB) monthly fees prompted me to look at the difference between using margin on IB vs using leveraged ETFs on a commission-free broker like M1 Finance. Let's assume this comparison is for someone with a $10k portfolio size. The following backtests are limited due to inception dates of leveraged ETFs (Mar 2010 - Feb 2019). The IB backtest includes a 2.5% annual withdrawal that accounts for the IB monthly account fee of $10 and the 1.5% annual borrow rate (in addition to the benchmark rate). The negative cash value in the backtest accounts for the benchmark borrow rate. Due to limited leveraged ETFs available, I have used SPY for all stocks and have consolidated all commodity holdings into GLD.

Here is the backtest for a 2X all-seasons portfolio using IB margin:
https://www.portfoliovisualizer.com/bac ... on5_1=-100

Here is the backtest for a 2X all-seasons portfolio using 2X leveraged ETFs:
https://www.portfoliovisualizer.com/bac ... tion4_1=15

Here is a brief summary:

Mar 2010 - Feb 2019
2X IB Margin - CAGR = 11.5%, Max DD = -17.0%
2X Lev ETF - CAGR = 13.2%, -17.3%

In summary, the leveraged ETF fund has performed better than the IB margin fund. However, with leveraged ETFS, you are limited on the indexes you can invest in. Therefore, you are somowhat limited in the types of tilts you can make with the asset allocations, especially for things like commodities, tips, etc.

interestediniras
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by interestediniras » Fri Mar 08, 2019 11:39 pm

DonIce wrote:
Fri Mar 08, 2019 8:27 pm
interestediniras wrote:
Fri Mar 08, 2019 7:57 pm
DonIce: How do you incrementally increase the size of a leveraged portfolio based on futures by a small number e.g. 5k from your monthly paycheck? One thing really holding me back from jumping on the futures train is the apparent difficulty of handling the large contract sizes.
Just add holdings as ETFs until you've built up enough to buy one more futures contract. You can adjust the treasury bill holdings to maintain a fairly constant leverage ratio.
Thanks. This should have been obvious, but I have an unfortunate habit to be very "all-or-nothing" in my thinking :)

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LadyGeek
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by LadyGeek » Thu Mar 14, 2019 2:17 pm

New member iudiehard1 has a question which I've moved into a stand-alone thread. See: [Dalio/Robbins All-Seasons or Pinwheel Portfolio, which to choose?]
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

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azanon
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by azanon » Thu Mar 14, 2019 2:50 pm

EfficientInvestor wrote:
Fri Mar 08, 2019 2:32 pm
Some have pointed out that the All-Seasons portfolio and the risk-parity concept is not applicable to them at the moment because it is less of a wealth-building portfolio and more of a wealth-sustaining one. I would counter by saying that while that may be true about the base portfolio, people should consider how to still apply the risk-parity idea to their own investing needs. If you apply external leverage to the base all-seasons portfolio, you will likely be better off than sticking with a stock heavy portfolio that you think will get you the type of higher returns you are looking for.

.......

In summary, my recommendation for improving the All-Seasons portfolio would be to add external leverage if you don't think the base portfolio has enough return potential to meet your needs.
My comments to this:
> My main issue with the "base" portfolio was that I didn't think it matched the one depicted in the "All-Weather Story" at Bridgewater. Simplified, I thought it was outright incorrect, and so did many other reviewers of the Robbins portfolio. One reviewer described it as nothing more than a bond heavy portfolio with a dash of commodities. So my main purpose was to build a more accurate, un-levered All Seasons Portfolio. So in my opinion, leveraged versions are off-topic. Leveraged versions are more akin to the real Bridgewater All-Weather portfolio.

> Many experts (e.g. webmaster at portfoliocharts, Zvi Bodie, Harry Browne) actually think that typical portfolios used today give little to no regard for sustaining the monies they've saved, yet throw in the kitchen sink in an effort maximize returns. In reality, the global market portfolio is only about 43% stocks. So some consider these typical portfolios with 80%+ stocks to be outright reckless. Likewise, they would also probably contend that portfolios more like an "All-seasons" is a truly balanced portfolio which considers both wealth-building and wealth-sustaining. Put quite frankly, if you can't build wealth with an All-seasons, you ain't saving enough. ... And I would almost best than none of those 3 I mentioned would endorse using leverage.

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Tyler9000
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by Tyler9000 » Thu Mar 14, 2019 5:42 pm

azanon wrote:
Thu Mar 14, 2019 2:50 pm
> Many experts (e.g. webmaster at portfoliocharts, Zvi Bodie, Harry Browne) actually think that typical portfolios used today give little to no regard for sustaining the monies they've saved, yet throw in the kitchen sink in an effort maximize returns. ... And I would almost best than none of those 3 I mentioned would endorse using leverage.

I'll let the excellent writings of Bodie and Browne speak for themselves (I particularly enjoyed Risk Less and Prosper and Fail-Safe Investing), but as the author of Portfolio Charts I'm happy to back you up on that bet. :wink: I don't endorse leverage because I believe most people are far better off picking a diversified asset allocation they can stick with through thick and thin and focusing their optimization energy on spending less and saving more rather than ramping up unnecessary risk with money they really can't afford to lose.

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azanon
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by azanon » Fri Mar 15, 2019 8:22 am

Thanks for the comment Tyler, and I hope you didn't mind me throwing the title expert in your direction. I think the work you do at that site is amazing - the calculators, the extremely thoughtful articles, your objectivity - it's expert grade in my book AFAIK. Part of why I wanted to do this project and share it with others, was to offer what I hope is yet another viable portfolio suggestion that carefully considers preservation of capital (which I think of preservation of one's hard-earned money) along with returns. One of my biggest fears is that there may still be many investors out there with equity-dominated portfolios that lack adequate temperament to hold such a portfolio when a protracted or deep bear market shows up. Just putting "stay the course" in a signature on a forum isn't going to save these people. I know real stories of real people who sold out in both the 2000-2003 drop AND the 2007-2009 drop. So many people think they must have these almost all stock portfolios to succeed, and it just isn't true.

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