Improving the Dalio/Robbins All-Seasons Portfolio

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

Post by Tyler9000 » Fri Mar 15, 2019 11:48 am

IMHO the "expert" title is earned, not claimed, so I'm just honored that you included me on the list. Like you, my goal is simply to help people think beyond over-simplified averages and find a portfolio that truly works for them.
:sharebeer

BTW, I agree with your core critique of the Robbins version of the All Seasons portfolio:
If you compare the paper to the portfolio that Dalio allegedly gave Robbins, it really doesn't match the white paper, and it also clearly is not maximizing the strategy as discussed in the paper. Specifically, it seems to over-allocate to defending against deflation, and under-allocate to defending against inflation The other issue is the Robbins portfolio isn't adequately designed to generate enough return, especially considering that it isn't leveraged.
It's a little too long to fully explain here, but if you look at the portfolio structure rather than the sales pitch I think the Robbins version shares more in common with the Larry portfolio (balancing small percentages of risky assets with large percentages of safer assets) than the Dalio All-Weather fund (balancing the portfolio impact of all economic conditions). So I appreciate your thought process behind getting back to the core Dalio philosophy.

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

Post by pward » Fri Mar 15, 2019 12:20 pm

Yeah I think Robbins tried his best to simplify it as much as possible so it would be something easily implementable by the average Joe. Complex portfolios with lots of assets scare people. I do hope some day that Dailo does finally do the investment principles book he has talked about so we can get a better understanding of his views and how he would personally implement an un-leveraged all-weather portfolio.

klaus14
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by klaus14 » Thu Mar 21, 2019 2:23 pm

azanon wrote:
Wed Dec 21, 2016 8:28 am
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%
WisdomTree has a relatively new fund (NTSX) blending 90% US Large caps with 6x levered treasuries via futures. It's cheap. 20 bps ER. I think it makes sense to use it for US equity holdings in this portfolio. It will allow you to increase equity percentage and returns w/o sacrificing risk parity.

Another interesting fund is Vanguard's multifactor fund VFMF. It's cheap and it has good factor exposure.

I split my US equity holdings between these two equally.

I use LEMB instead of EMLC for local currency emerging bonds. It seems to have better credit ratings and shorter duration. Same ER.
I also hold equal amount of USD EM Bonds. I use VEGBX but VWOB would also work and cheaper (30 bps)

For gold, i am using GLDM. 18 bps ER. It's cheaper than IAU and liquid enough.

Another big thing revised portfolio misses is emerging equities. Any portfolio w/o China misses some significant risk/return.

So i think below version deserves some thought:

10% WisdomTree 90/60 U.S. Balanced Fund (NTSX) 0.20%
10% Vanguard US Multifactor ETF (VFMF) 0.18%
5% iShares Core MSCI Emerging Markets ETF (IEMG) 0.14%

5% iShares EM Local Currency Bond ETF (LEMB) 0.30%
5% Vanguard Emerging Markets Government Bond ETF (VWOB) 0.30%

20% Vanguard Extended Duration Treasury ETF (EDV) 0.07%
30% PIMCO 15+ Year US TIPS ETF (LTPZ) 0.20%
7.5% ETFS Bloomberg All Commodity Strategy (BCI) 0.29%
7.5% SPDR Gold MiniShares Trust (GLDM) 0.18%

Using NTSX allowed moving 5% to IEMG. I took it from LTPZ.

Data is limited for NTSX, but this portfolio performed similarly in the last 6 months.

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

Post by pward » Thu Mar 21, 2019 7:37 pm

klaus14 wrote:
Thu Mar 21, 2019 2:23 pm
azanon wrote:
Wed Dec 21, 2016 8:28 am
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%
WisdomTree has a relatively new fund (NTSX) blending 90% US Large caps with 6x levered treasuries via futures. It's cheap. 20 bps ER. I think it makes sense to use it for US equity holdings in this portfolio. It will allow you to increase equity percentage and returns w/o sacrificing risk parity.

Another interesting fund is Vanguard's multifactor fund VFMF. It's cheap and it has good factor exposure.

I split my US equity holdings between these two equally.

I use LEMB instead of EMLC for local currency emerging bonds. It seems to have better credit ratings and shorter duration. Same ER.
I also hold equal amount of USD EM Bonds. I use VEGBX but VWOB would also work and cheaper (30 bps)

For gold, i am using GLDM. 18 bps ER. It's cheaper than IAU and liquid enough.

Another big thing revised portfolio misses is emerging equities. Any portfolio w/o China misses some significant risk/return.

So i think below version deserves some thought:

10% WisdomTree 90/60 U.S. Balanced Fund (NTSX) 0.20%
10% Vanguard US Multifactor ETF (VFMF) 0.18%
5% iShares Core MSCI Emerging Markets ETF (IEMG) 0.14%

5% iShares EM Local Currency Bond ETF (LEMB) 0.30%
5% Vanguard Emerging Markets Government Bond ETF (VWOB) 0.30%

20% Vanguard Extended Duration Treasury ETF (EDV) 0.07%
30% PIMCO 15+ Year US TIPS ETF (LTPZ) 0.20%
7.5% ETFS Bloomberg All Commodity Strategy (BCI) 0.29%
7.5% SPDR Gold MiniShares Trust (GLDM) 0.18%

Using NTSX allowed moving 5% to IEMG. I took it from LTPZ.

Data is limited for NTSX, but this portfolio performed similarly in the last 6 months.
Do keep in mind that a great deal of emerging markets gains/losses to an American holder are actually fluctuations in the U.S. dollar. So just keep in mind that emerging markets, commodities, and gold are all going to respond to changes in the dollar. So that will effect your risk parity allocations on the inflation/deflation side of the equation.

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

Post by Foranpower » Wed May 08, 2019 7:41 pm

Hey Azanon and everyone,

Thanks for the beautiful post.

The tips part particularly interests me, it seems that portion increased over time.

Not that you have time, but would you explain inflation-protected bonds (tips) in as much detail as possible with expected historic performance.

Since they were introduced only about 20 years ago, it is hard for me to estimate their performance first during deflation (1929-1932 great recession), second low growth but high inflation like the 40's, finally with high inflation during the 70's and 80s?

How would you imagine that tips would have performed during those situations?

Thanks for considering!

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willthrill81
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by willthrill81 » Wed May 08, 2019 7:54 pm

Foranpower wrote:
Wed May 08, 2019 7:41 pm
Not that you have time, but would you explain inflation-protected bonds (tips) in as much detail as possible with expected historic performance.

Since they were introduced only about 20 years ago, it is hard for me to estimate their performance first during deflation (1929-1932 great recession), second low growth but high inflation like the 40's, finally with high inflation during the 70's and 80s?

How would you imagine that tips would have performed during those situations?
I've wondered the same thing, but it's impossible for anyone to do more than speculate as to how TIPS would have performed historically.

Generally, the view is that over the long-term, TIPS should have slightly less yield than Treasuries of an equivalent duration since TIPS are providing 'inflation insurance', which has an implicit cost associated with it. However, they are slightly less liquid than Treasuries, so an illiquidity premium would be expected to exist over the long-term as well. But precisely how that would shake out is anybody's guess. It seems pretty safe to say, though, that if actual inflation is significantly higher (lower) than the market expects it to be over a given period, TIPS will outperform (underperform) Treasuries.
Last edited by willthrill81 on Mon Jun 24, 2019 9:09 am, edited 1 time in total.
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DonIce
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by DonIce » Wed May 08, 2019 8:01 pm

willthrill81 wrote:
Wed May 08, 2019 7:54 pm
Foranpower wrote:
Wed May 08, 2019 7:41 pm
Not that you have time, but would you explain inflation-protected bonds (tips) in as much detail as possible with expected historic performance.

Since they were introduced only about 20 years ago, it is hard for me to estimate their performance first during deflation (1929-1932 great recession), second low growth but high inflation like the 40's, finally with high inflation during the 70's and 80s?

How would you imagine that tips would have performed during those situations?
I've wondered the same thing, but it's impossible for anyone to do more than speculate as to how TIPS would have performed historically.

Generally, the view is that over the long-term, TIPS should have slightly less yield than Treasuries of an equivalent duration since TIPS are providing 'inflation insurance', which has an implicit cost associated with it. However, they are slightly less liquid than Treasuries, so an illiquidity premium would be expected to exist over the long-term as well. But precisely how that would shake out is anybody's guess. It seems pretty safe to safe, though, that if actual inflation is significantly higher (lower) than the market expects it to be over a given period, TIPS will outperform (underperform) Treasuries.
Some European countries have had inflation-linked government bonds for a lot longer than the US has. Seems like it should be possible to look at the performance of those compared to that country's nominal bonds. The results would probably be generally applicable to how TIPS would be expected to perform in similar conditions relative to treasuries.

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

Post by Coato » Sun Jun 23, 2019 8:53 am

azanon wrote:
Wed Dec 21, 2016 8:28 am
Lately, I've been working on a project of improving the Ray Dalio All-Seasons portfolio, discussed by Bridgewater here: https://www.bridgewater.com/research-li ... -strategy/ but the brought more in the public eye by Tony Robbins recent book.

If you compare the paper to the portfolio that Dalio allegedly gave Robbins, it really doesn't match the white paper, and it also clearly is not maximizing the strategy as discussed in the paper. Specifically, it seems to over-allocate to defending against deflation, and under-allocate to defending against inflation The other issue is the Robbins portfolio isn't adequately designed to generate enough return, especially considering that it isn't leveraged.

Anyway, here's my version:

15% Vanguard Mid-Cap Value Index (mutual fund or ETF)
15% Vanguard FTSC All-World ex-US Small Cap ETF (VSS)
20% Vanguard Extended Duration Treasury ETF (EDV)
20% Vanguard TIPS (VAIPX)
10% VanEck Vectors JP Morgan EM (local currency) Bond ETF - (EMLC)
10% United States Commodities Index (USCI)
10% iShares Gold Trust (IAU)

Ok, so what do I have going on here? First of all, I was able to keep the low stock position at 30%, but amp up the expected beta (by a full 1% on the portfolio) simply by using a value and small tilt on the US, and a small tilt on the foreign, while still keeping the cost low on both.

For the long-duration treasuries, instead of using 40% LT government bonds that pay interest (such as VGLT), I'm substituting 25-yr zero-coupon Treasuries to create a maximize faux leverage which allows me to drop the total allocation to use elsewhere. And using calculators at portfoliovisualizer, I was able to estimate that the 30% position on equities that I'm using approximately match the volatility of a 20% position in the zeros (amazing isn't it, that it takes a 1.5:1 of stocks to match the volatility of those STRIPS).

I'm going with a 20% position in TIPS because the white-paper clearly addresses the importance of inflation-linked bonds, and how they would be favored in 2 of 4 investing climates. While I briefly considered short-term TIPS due to less correlation with EDV, and the stocks, I'm ultimately rejecting it, because independently and over a long-term, the regular TIPS would have a higher return, and the collective duration exposure of EDV and VAIPX would still be lower than the "Robbins/Dalio" portfolio. That being said, if you wanted a bit more stability, and could live with slightly less return, short-term TIPS would be a decent substitute IMO.

For additional inflation fighting (and really an important "enemy"), I'm including 10% commodities. For similar reasons, I'm adding in 10% Gold (and also for Dalio's strong statements on Gold). Note also that this is close to the Robbins/Dalio allocation.

I'm rounding the portfolio out with 10% in local currency EM debt because it's listed in the white-paper, because it gives additional currency diversification (only 15% without it in this portfolio), and because EM debt should have high independent return.

I believe the portfolio comes out to a weighted cost of 0.23%. That's cheap enough to not be an issue. Rebalance annually.

So anyway, that's it. If you like this sort of thing, I think my version is considerably better than the half-baked Robbins one. If you have suggestions for how to tweak it further, please let me know, but please limit them to ones that would be consistent with the strategy as described in the white paper.

Again, remember, the point of the strategy is to hold a portfolio that has neutral bias towards what the future holds. So, it avoids the bias that most people have in their portfolio, which is towards economic expansion/growth/prosperity (due to high stock allocations).

........................
Edit (9/20/2017)

I wanted to make sure my most up-to-date portfolio is listed up front. See the thread to see how that evolved with others help (Also, I actually own this portfolio for my non TSP holdings which is about 40%):

Revised portfolio:
25% Vanguard Mid-Cap Value ETF (VOE) 0.07%
10% Market Vectors Emerging Mkts Local ETF (EMLC) 0.44%
20% Vanguard Extended Duration Treasury ETF (EDV) 0.07%
30% 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%

................
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%

...............
Edit (6/6/2019)

> Two relatively minor changes; SGOL for IAU (it's cheaper, in short), and VFVA for VOE. Use caution with this second change because VFVA still has very small AUM which increases spreads and makes it more vulnerable to not being sustained, but I don't see Vanguard throwing in the towel on factoring any time soon. As for why the change, VFVA still averages as "mid-cap value", but it loads the value factor quite a bit more than VOE, but includes stocks ranging all the way from micro-cap to large cap, and holds quite a bit more stocks too. As best I can tell (by substituting similar etfs to VFVA on asset correlation screening), i anticipate VFVA will have lower correlation to the other holdings in the portfolio in comparison to VOE.
> At this point, i consider these changes to be just tweaks. If you decided to use one of the two previous portfolios, they're close enough.

Revised portfolio:
20% Vanguard U.S. Value Factor ETF (VFVA) 0.13%
10% Market Vectors Emerging Mkts Local ETF (EMLC) 0.30%
20% Vanguard Extended Duration Treasury ETF (EDV) 0.07%
35% PIMCO 15+ Year US TIPS ETF (LTPZ) 0.20%
7.5% Aberdeen Standard Bloomberg All Commodity Strategy K-1 Free ETF (BCI) 0.25%
7.5% Aberdeen Standard Physical Swiss Gold Shares ETF (SGOL) 0.17%
Composite ER = 0.17%
I really enjoyed reading this thread in its entirety.

A couple of questions:
1. As a thought experiment, could this be trimmed down to 4 or so etfs without losing too much of its effectiveness in all 4 of the quadrants?

2. How much of the portfolio is geared to the higher than expected growth, higher than expected inflation quadrant? What percentages of each portfolio do you think work in each of the four quadrants? (Higher than expected growth, higher than expected inflation; higher than expected growth, lower than expected inflation; lower than expected growth, higher than expected inflation; lower than expected growth, lower than expected inflation)? Taguscove mentioned that it was supposed to be condition-agnostic (unlike say Dr. Bernstein who says hyper inflation is three times more likely than crushing deflation in Deep Risk) but it seems like some quadrants have more coverage than others just eyeballing it.

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

Post by TheJoelfather » Sun Jun 23, 2019 3:41 pm

Coato wrote:
Sun Jun 23, 2019 8:53 am
1. As a thought experiment, could this be trimmed down to 4 or so etfs without losing too much of its effectiveness in all 4 of the quadrants?
Yes, the original Dalio allocation only requires 5 asset classes:

30% Equity: ITOT
40% Long-term treasury: TLT
15%: Intermediate treasury: IEF
7.5% Commodity: BCI
7.5% Gold: SGOL

klaus14
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by klaus14 » Sun Jun 23, 2019 3:54 pm

Coato wrote:
Sun Jun 23, 2019 8:53 am

I really enjoyed reading this thread in its entirety.

A couple of questions:
1. As a thought experiment, could this be trimmed down to 4 or so etfs without losing too much of its effectiveness in all 4 of the quadrants?

2. How much of the portfolio is geared to the higher than expected growth, higher than expected inflation quadrant? What percentages of each portfolio do you think work in each of the four quadrants? (Higher than expected growth, higher than expected inflation; higher than expected growth, lower than expected inflation; lower than expected growth, higher than expected inflation; lower than expected growth, lower than expected inflation)? Taguscove mentioned that it was supposed to be condition-agnostic (unlike say Dr. Bernstein who says hyper inflation is three times more likely than crushing deflation in Deep Risk) but it seems like some quadrants have more coverage than others just eyeballing it.
1. You could do:
30% VT
20% EDV
35% LTPZ
15% SGOL

if you want to tilt towards prosperity move 5% from LTPZ to VT.

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

Post by photomonkey » Sun Jun 23, 2019 4:31 pm

azanon, thanks for the superb work on this.

A couple of questions: how often and at what thresholds have you been rebalancing your version of the all-weather portfolio?

I ask as someone who's been implementing your 9/2018 version since mid April 2019. I hesitate to incur taxes on short term capital gains in the first year but would love to know when you think an allocation is too far out of whack as a percentage on any given ETF.

Thanks in advance.

Coato
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Joined: Wed Oct 21, 2015 4:34 pm

Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by Coato » Sun Jun 23, 2019 4:39 pm

klaus14 wrote:
Sun Jun 23, 2019 3:54 pm
Coato wrote:
Sun Jun 23, 2019 8:53 am

I really enjoyed reading this thread in its entirety.

A couple of questions:
1. As a thought experiment, could this be trimmed down to 4 or so etfs without losing too much of its effectiveness in all 4 of the quadrants?

2. How much of the portfolio is geared to the higher than expected growth, higher than expected inflation quadrant? What percentages of each portfolio do you think work in each of the four quadrants? (Higher than expected growth, higher than expected inflation; higher than expected growth, lower than expected inflation; lower than expected growth, higher than expected inflation; lower than expected growth, lower than expected inflation)? Taguscove mentioned that it was supposed to be condition-agnostic (unlike say Dr. Bernstein who says hyper inflation is three times more likely than crushing deflation in Deep Risk) but it seems like some quadrants have more coverage than others just eyeballing it.
1. You could do:
30% VT
20% EDV
35% LTPZ
15% SGOL

if you want to tilt towards prosperity move 5% from LTPZ to VT.
I was thinking:
Equities for higher than expected growth, lower than expected inflation

Long TIPs for lower than expected growth, higher than expected inflation

Long Treasuries for lower than expected growth, lower than expected inflation

Higher than expected growth, higher than expected inflation... this is the one i'm not sure about... Emerging Markets equities would be my ideal over say Gold/Commodities... Probably a rental unit or residential REIT would work... I am intrigued by that box of high inflation/high growth because I can't think of a period that that looks like.

I also don't understand why there would be more long TIPs (35%) than long Treasuries (20%). I feel comfortable with the rational of Swensen's 50/50 and don't understand why there would be almost twice as high an allocation to TIPs than Treasuries. Is that to mitigate the duration/inflation risk?

klaus14
Posts: 238
Joined: Sun Nov 25, 2018 7:43 pm

Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by klaus14 » Sun Jun 23, 2019 4:50 pm

Coato wrote:
Sun Jun 23, 2019 4:39 pm
klaus14 wrote:
Sun Jun 23, 2019 3:54 pm
Coato wrote:
Sun Jun 23, 2019 8:53 am

I really enjoyed reading this thread in its entirety.

A couple of questions:
1. As a thought experiment, could this be trimmed down to 4 or so etfs without losing too much of its effectiveness in all 4 of the quadrants?

2. How much of the portfolio is geared to the higher than expected growth, higher than expected inflation quadrant? What percentages of each portfolio do you think work in each of the four quadrants? (Higher than expected growth, higher than expected inflation; higher than expected growth, lower than expected inflation; lower than expected growth, higher than expected inflation; lower than expected growth, lower than expected inflation)? Taguscove mentioned that it was supposed to be condition-agnostic (unlike say Dr. Bernstein who says hyper inflation is three times more likely than crushing deflation in Deep Risk) but it seems like some quadrants have more coverage than others just eyeballing it.
1. You could do:
30% VT
20% EDV
35% LTPZ
15% SGOL

if you want to tilt towards prosperity move 5% from LTPZ to VT.
I was thinking:
Equities for higher than expected growth, lower than expected inflation

Long TIPs for lower than expected growth, higher than expected inflation

Long Treasuries for lower than expected growth, lower than expected inflation

Higher than expected growth, higher than expected inflation... this is the one i'm not sure about... Emerging Markets equities would be my ideal over say Gold/Commodities... Probably a rental unit or residential REIT would work... I am intrigued by that box of high inflation/high growth because I can't think of a period that that looks like.

I also don't understand why there would be more long TIPs (35%) than long Treasuries (20%). I feel comfortable with the rational of Swensen's 50/50 and don't understand why there would be almost twice as high an allocation to TIPs than Treasuries. Is that to mitigate the duration/inflation risk?
TIPS and gold would do well in that quadrant. As well as emerging stock.
VT is 55% US, 45% international stocks, 10% EM. I myself overweight EM but you wanted 4 ETFs :)

Gold is not only for inflation. it's a safe asset when people loose confidence on stocks/bonds.
Long TIPS are very similar to long treasuries especially now that they are cheap with breakeven around 1.90%.
Yes, if inflation causes high interest rates, LT would suffer. Whereas L Tips would do fine.
Whereas, inflation less than 1.90% would mean LTPZ underperformance. Maybe azanon can explain how he balanced less/more than expected inflation.
Last edited by klaus14 on Sun Jun 23, 2019 5:00 pm, edited 3 times in total.

klaus14
Posts: 238
Joined: Sun Nov 25, 2018 7:43 pm

Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by klaus14 » Sun Jun 23, 2019 4:56 pm

Duplicate.

Coato
Posts: 167
Joined: Wed Oct 21, 2015 4:34 pm

Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by Coato » Sun Jun 23, 2019 5:14 pm

klaus14 wrote:
Sun Jun 23, 2019 4:50 pm
Coato wrote:
Sun Jun 23, 2019 4:39 pm
klaus14 wrote:
Sun Jun 23, 2019 3:54 pm
Coato wrote:
Sun Jun 23, 2019 8:53 am

I really enjoyed reading this thread in its entirety.

A couple of questions:
1. As a thought experiment, could this be trimmed down to 4 or so etfs without losing too much of its effectiveness in all 4 of the quadrants?

2. How much of the portfolio is geared to the higher than expected growth, higher than expected inflation quadrant? What percentages of each portfolio do you think work in each of the four quadrants? (Higher than expected growth, higher than expected inflation; higher than expected growth, lower than expected inflation; lower than expected growth, higher than expected inflation; lower than expected growth, lower than expected inflation)? Taguscove mentioned that it was supposed to be condition-agnostic (unlike say Dr. Bernstein who says hyper inflation is three times more likely than crushing deflation in Deep Risk) but it seems like some quadrants have more coverage than others just eyeballing it.
1. You could do:
30% VT
20% EDV
35% LTPZ
15% SGOL

if you want to tilt towards prosperity move 5% from LTPZ to VT.
I was thinking:
Equities for higher than expected growth, lower than expected inflation

Long TIPs for lower than expected growth, higher than expected inflation

Long Treasuries for lower than expected growth, lower than expected inflation

Higher than expected growth, higher than expected inflation... this is the one i'm not sure about... Emerging Markets equities would be my ideal over say Gold/Commodities... Probably a rental unit or residential REIT would work... I am intrigued by that box of high inflation/high growth because I can't think of a period that that looks like.

I also don't understand why there would be more long TIPs (35%) than long Treasuries (20%). I feel comfortable with the rational of Swensen's 50/50 and don't understand why there would be almost twice as high an allocation to TIPs than Treasuries. Is that to mitigate the duration/inflation risk?
TIPS and gold would do well in that quadrant. As well as emerging stock.
VT is 55% US, 45% international stocks, 10% EM. I myself overweight EM but you wanted 4 ETFs :)

Gold is not only for inflation. it's a safe asset when people loose confidence on stocks/bonds.
Long TIPS are very similar to long treasuries especially now that they are cheap with breakeven around 1.90%.
Yes, if inflation causes high interest rates, LT would suffer. Whereas L Tips would do fine.
Whereas, inflation less than 1.90% would mean LTPZ underperformance. Maybe azanon can explain how he balanced less/more than expected inflation.
It's hard because I really dislike Gold, and that has always kept me at arm's length from a few allocations that look interesting for retirement. I know it isn't rational but I find the whole "greater fool" aspect of it, where a gold salesman gets on the radio and tries to make everyone terrified about the impending collapse of the dollar, quite distasteful. I can't make myself buyGold knowing "that guy" is on the other side of the trade. So perhaps I was dancing around the real issue, which is that I'd love a 4 ETF risk parity portfolio not featuring Gold or ideally commodities.

Alex Shahidi has an interesting one of 20% VT, 20% Commodities, 30% Long Treasuries, 30% Long TIPs... This site has pretty much cured me of any idealism about CCfs so it's finding something investible for that Growth/Inflation box I am thinking of. (As far as I can tell you need to have an asset that will provide return in each of the four conditions.) The other three quadrants feel really easy with equities, treasuries and TIPS...

klaus14
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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by klaus14 » Sun Jun 23, 2019 6:40 pm

Coato wrote:
Sun Jun 23, 2019 5:14 pm

It's hard because I really dislike Gold, and that has always kept me at arm's length from a few allocations that look interesting for retirement. I know it isn't rational but I find the whole "greater fool" aspect of it, where a gold salesman gets on the radio and tries to make everyone terrified about the impending collapse of the dollar, quite distasteful. I can't make myself buyGold knowing "that guy" is on the other side of the trade. So perhaps I was dancing around the real issue, which is that I'd love a 4 ETF risk parity portfolio not featuring Gold or ideally commodities.

Alex Shahidi has an interesting one of 20% VT, 20% Commodities, 30% Long Treasuries, 30% Long TIPs... This site has pretty much cured me of any idealism about CCfs so it's finding something investible for that Growth/Inflation box I am thinking of. (As far as I can tell you need to have an asset that will provide return in each of the four conditions.) The other three quadrants feel really easy with equities, treasuries and TIPS...
i have similar aversion towards commodities. their expected return is also zero but they don't have the historical standing of gold. It's not only lunatics buying gold. central banks across the world are also doing it.

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

Post by azanon » Mon Jun 24, 2019 7:45 am

Coato wrote:
Sun Jun 23, 2019 8:53 am
azanon wrote:
Wed Dec 21, 2016 8:28 am
Lately, I've been working on a project of improving the Ray Dalio All-Seasons portfolio, discussed by Bridgewater here: https://www.bridgewater.com/research-li ... -strategy/ but the brought more in the public eye by Tony Robbins recent book.

If you compare the paper to the portfolio that Dalio allegedly gave Robbins, it really doesn't match the white paper, and it also clearly is not maximizing the strategy as discussed in the paper. Specifically, it seems to over-allocate to defending against deflation, and under-allocate to defending against inflation The other issue is the Robbins portfolio isn't adequately designed to generate enough return, especially considering that it isn't leveraged.

Anyway, here's my version:

15% Vanguard Mid-Cap Value Index (mutual fund or ETF)
15% Vanguard FTSC All-World ex-US Small Cap ETF (VSS)
20% Vanguard Extended Duration Treasury ETF (EDV)
20% Vanguard TIPS (VAIPX)
10% VanEck Vectors JP Morgan EM (local currency) Bond ETF - (EMLC)
10% United States Commodities Index (USCI)
10% iShares Gold Trust (IAU)

Ok, so what do I have going on here? First of all, I was able to keep the low stock position at 30%, but amp up the expected beta (by a full 1% on the portfolio) simply by using a value and small tilt on the US, and a small tilt on the foreign, while still keeping the cost low on both.

For the long-duration treasuries, instead of using 40% LT government bonds that pay interest (such as VGLT), I'm substituting 25-yr zero-coupon Treasuries to create a maximize faux leverage which allows me to drop the total allocation to use elsewhere. And using calculators at portfoliovisualizer, I was able to estimate that the 30% position on equities that I'm using approximately match the volatility of a 20% position in the zeros (amazing isn't it, that it takes a 1.5:1 of stocks to match the volatility of those STRIPS).

I'm going with a 20% position in TIPS because the white-paper clearly addresses the importance of inflation-linked bonds, and how they would be favored in 2 of 4 investing climates. While I briefly considered short-term TIPS due to less correlation with EDV, and the stocks, I'm ultimately rejecting it, because independently and over a long-term, the regular TIPS would have a higher return, and the collective duration exposure of EDV and VAIPX would still be lower than the "Robbins/Dalio" portfolio. That being said, if you wanted a bit more stability, and could live with slightly less return, short-term TIPS would be a decent substitute IMO.

For additional inflation fighting (and really an important "enemy"), I'm including 10% commodities. For similar reasons, I'm adding in 10% Gold (and also for Dalio's strong statements on Gold). Note also that this is close to the Robbins/Dalio allocation.

I'm rounding the portfolio out with 10% in local currency EM debt because it's listed in the white-paper, because it gives additional currency diversification (only 15% without it in this portfolio), and because EM debt should have high independent return.

I believe the portfolio comes out to a weighted cost of 0.23%. That's cheap enough to not be an issue. Rebalance annually.

So anyway, that's it. If you like this sort of thing, I think my version is considerably better than the half-baked Robbins one. If you have suggestions for how to tweak it further, please let me know, but please limit them to ones that would be consistent with the strategy as described in the white paper.

Again, remember, the point of the strategy is to hold a portfolio that has neutral bias towards what the future holds. So, it avoids the bias that most people have in their portfolio, which is towards economic expansion/growth/prosperity (due to high stock allocations).

........................
Edit (9/20/2017)

I wanted to make sure my most up-to-date portfolio is listed up front. See the thread to see how that evolved with others help (Also, I actually own this portfolio for my non TSP holdings which is about 40%):

Revised portfolio:
25% Vanguard Mid-Cap Value ETF (VOE) 0.07%
10% Market Vectors Emerging Mkts Local ETF (EMLC) 0.44%
20% Vanguard Extended Duration Treasury ETF (EDV) 0.07%
30% 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%

................
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%

...............
Edit (6/6/2019)

> Two relatively minor changes; SGOL for IAU (it's cheaper, in short), and VFVA for VOE. Use caution with this second change because VFVA still has very small AUM which increases spreads and makes it more vulnerable to not being sustained, but I don't see Vanguard throwing in the towel on factoring any time soon. As for why the change, VFVA still averages as "mid-cap value", but it loads the value factor quite a bit more than VOE, but includes stocks ranging all the way from micro-cap to large cap, and holds quite a bit more stocks too. As best I can tell (by substituting similar etfs to VFVA on asset correlation screening), i anticipate VFVA will have lower correlation to the other holdings in the portfolio in comparison to VOE.
> At this point, i consider these changes to be just tweaks. If you decided to use one of the two previous portfolios, they're close enough.

Revised portfolio:
20% Vanguard U.S. Value Factor ETF (VFVA) 0.13%
10% Market Vectors Emerging Mkts Local ETF (EMLC) 0.30%
20% Vanguard Extended Duration Treasury ETF (EDV) 0.07%
35% PIMCO 15+ Year US TIPS ETF (LTPZ) 0.20%
7.5% Aberdeen Standard Bloomberg All Commodity Strategy K-1 Free ETF (BCI) 0.25%
7.5% Aberdeen Standard Physical Swiss Gold Shares ETF (SGOL) 0.17%
Composite ER = 0.17%
I really enjoyed reading this thread in its entirety.

A couple of questions:
1. As a thought experiment, could this be trimmed down to 4 or so etfs without losing too much of its effectiveness in all 4 of the quadrants?

2. How much of the portfolio is geared to the higher than expected growth, higher than expected inflation quadrant? What percentages of each portfolio do you think work in each of the four quadrants? (Higher than expected growth, higher than expected inflation; higher than expected growth, lower than expected inflation; lower than expected growth, higher than expected inflation; lower than expected growth, lower than expected inflation)? Taguscove mentioned that it was supposed to be condition-agnostic (unlike say Dr. Bernstein who says hyper inflation is three times more likely than crushing deflation in Deep Risk) but it seems like some quadrants have more coverage than others just eyeballing it.
1. No, not really. Dalio has a paper somewhere (and I believe it might have showed up in the latest book principles? not sure on that) where he discusses discovering the holy grail of investing, which really was nothing more than combining up to 15 uncorrelated asset classes to increase risk adjusted return. While I couldn't find 15, the 6 in this portfolio are fairly distinct in this regard, so removing 2 of them will cause the portfolio to take a significant risk-adjusted return hit, in my opinion.

I'm finding it pretty easy to manage 6 ETFs though. The Swensen portfolio has that many so I think it's reasonable.

2. I managed to get the 4 quadrants VERY close, using historical data, where the most risky quadrant was less than 5% different than the least risky. Remember, all of the assets here count in 2 of the quadrants. So given the randomness of historical data (future vs. the past), all 4 quadrants are equal for all intents and purposes.

Risk parity approaches the strategy differently than Dr. Bernstein. The "neutral" position of a risk parity portfolio takes the view that surprises from what is expected to happen (surprises to either changes in growth or inflation) is equally likely in any direction. Why is that the case? If one pathway (such as increased inflation) were more likely, then that would already be priced into the assets. I actually think he should reconsider how he looked at that. A claim to be better off in assets that respond positively to increased inflation, is a claim to have discovered a mispricing in the market.

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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by azanon » Mon Jun 24, 2019 7:51 am

photomonkey wrote:
Sun Jun 23, 2019 4:31 pm
azanon, thanks for the superb work on this.

A couple of questions: how often and at what thresholds have you been rebalancing your version of the all-weather portfolio?

I ask as someone who's been implementing your 9/2018 version since mid April 2019. I hesitate to incur taxes on short term capital gains in the first year but would love to know when you think an allocation is too far out of whack as a percentage on any given ETF.

Thanks in advance.
> I check bi-weekly, and use 20% relative thresholds. I chose this based upon this Michael Kitces article "Finding The Optimal Rebalancing Frequency - Time Horizons Vs. Tolerance Bands" located here: https://www.kitces.com/blog/best-opport ... hresholds/

> Now my portfolio is in a tax-sheltered account so my only costs are spreads when i buy and sell (trades are free at Vanguard), so I'll be quick to admit your question regarding tax-strategies for the portfolio (e.g. when to rebalance it if using a taxable account) is beyond my "hobbyist" knowledge. To be completely honest, my fear is that this portfolio is probably not a particularly friendly portfolio for a taxable account. But I'll stop short of saying whether or not its appropriate for a taxable account - I'm just not sure.
Last edited by azanon on Mon Jun 24, 2019 8:06 am, edited 1 time in total.

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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by azanon » Mon Jun 24, 2019 7:54 am

Coato wrote:
Sun Jun 23, 2019 4:39 pm
klaus14 wrote:
Sun Jun 23, 2019 3:54 pm
Coato wrote:
Sun Jun 23, 2019 8:53 am

I really enjoyed reading this thread in its entirety.

A couple of questions:
1. As a thought experiment, could this be trimmed down to 4 or so etfs without losing too much of its effectiveness in all 4 of the quadrants?

2. How much of the portfolio is geared to the higher than expected growth, higher than expected inflation quadrant? What percentages of each portfolio do you think work in each of the four quadrants? (Higher than expected growth, higher than expected inflation; higher than expected growth, lower than expected inflation; lower than expected growth, higher than expected inflation; lower than expected growth, lower than expected inflation)? Taguscove mentioned that it was supposed to be condition-agnostic (unlike say Dr. Bernstein who says hyper inflation is three times more likely than crushing deflation in Deep Risk) but it seems like some quadrants have more coverage than others just eyeballing it.
1. You could do:
30% VT
20% EDV
35% LTPZ
15% SGOL

if you want to tilt towards prosperity move 5% from LTPZ to VT.
...........

I also don't understand why there would be more long TIPs (35%) than long Treasuries (20%). I feel comfortable with the rational of Swensen's 50/50 and don't understand why there would be almost twice as high an allocation to TIPs than Treasuries. Is that to mitigate the duration/inflation risk?
I'm not tracking you guys attempt to reduce to 4 ETFs, but to answer this question, the 35% vs. 20% in my portfolio was to risk balance the 4 quadrants. This is not the only explanation (because there were other variables), but you could pretty easily confirm that EDV is more volatile than LTPZ, so it's reasonable to expect it to have a lower percentage. Remember, it's risk balancing, not % weight balancing.

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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by Coato » Mon Jun 24, 2019 8:35 am

Azanon,

I am quoting you here to avoid that giant yellow wall.

"I'm not tracking you guys attempt to reduce to 4 ETFs, but to answer this question, the 35% vs. 20% in my portfolio was to risk balance the 4 quadrants. This is not the only explanation (because there were other variables), but you could pretty easily confirm that EDV is more volatile than LTPZ, so it's reasonable to expect it to have a lower percentage. Remember, it's risk balancing, not % weight balancing."

This is a legitimate question form someone that has never strayed from CDs/Short Treasuries: If LTPZ has a duration of 22 years and EDV has a duration of 23 years why is the volatility different?

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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by willthrill81 » Mon Jun 24, 2019 9:12 am

azanon wrote:
Mon Jun 24, 2019 7:51 am
photomonkey wrote:
Sun Jun 23, 2019 4:31 pm
azanon, thanks for the superb work on this.

A couple of questions: how often and at what thresholds have you been rebalancing your version of the all-weather portfolio?

I ask as someone who's been implementing your 9/2018 version since mid April 2019. I hesitate to incur taxes on short term capital gains in the first year but would love to know when you think an allocation is too far out of whack as a percentage on any given ETF.

Thanks in advance.
> I check bi-weekly, and use 20% relative thresholds. I chose this based upon this Michael Kitces article "Finding The Optimal Rebalancing Frequency - Time Horizons Vs. Tolerance Bands" located here: https://www.kitces.com/blog/best-opport ... hresholds/

> Now my portfolio is in a tax-sheltered account so my only costs are spreads when i buy and sell (trades are free at Vanguard), so I'll be quick to admit your question regarding tax-strategies for the portfolio (e.g. when to rebalance it if using a taxable account) is beyond my "hobbyist" knowledge. To be completely honest, my fear is that this portfolio is probably not a particularly friendly portfolio for a taxable account. But I'll stop short of saying whether or not its appropriate for a taxable account - I'm just not sure.
Annual rebalancing is fine for most strategies, and getting hit with higher short-term capital gains (i.e. your marginal tax rate) is not likely to work out well.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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

Post by azanon » Mon Jun 24, 2019 9:42 am

Coato wrote:
Mon Jun 24, 2019 8:35 am
Azanon,

I am quoting you here to avoid that giant yellow wall.

"I'm not tracking you guys attempt to reduce to 4 ETFs, but to answer this question, the 35% vs. 20% in my portfolio was to risk balance the 4 quadrants. This is not the only explanation (because there were other variables), but you could pretty easily confirm that EDV is more volatile than LTPZ, so it's reasonable to expect it to have a lower percentage. Remember, it's risk balancing, not % weight balancing."

This is a legitimate question form someone that has never strayed from CDs/Short Treasuries: If LTPZ has a duration of 22 years and EDV has a duration of 23 years why is the volatility different?
TIPS have inflation protection built into the product, where nominal treasuries do not. So at the same duration, TIPS are much safer than very long duration nominal bonds, relative to unexpected inflation.

EDV, quite frankly, should be used very cautiously, and I would say only for portfolios specifically designed to balance the special risk they'll bring. I believe even Vanguard says its only for professional or even institutional use? (?) Anyway, my portfolio is designed for it, but I wouldn't recommend adding it as the "40%" to a 60/40 portfolio, for example. But LTPZ? That'd probably be ok. In fact, were I to use a vanilla 60/40, I might even prefer LTPZ over, say, BND (or just "regular" TIPS such as SCHP).

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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by columbia » Mon Jun 24, 2019 10:07 am

What risk (in your portfolio) is EDV designed to counter act?

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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by azanon » Mon Jun 24, 2019 10:56 am

columbia wrote:
Mon Jun 24, 2019 10:07 am
What risk (in your portfolio) is EDV designed to counter act?
EDV (Extended duration Treasuries - Treasury STRIPS) is being used to represent "Nominal Bonds" in this All-Weather portfolio and, as such, fits into the "falling inflation" and "falling growth" quadrants of the environmental box framework. EDV was specifically selected as the best way to represent "Nominal Bonds" without resorting to leverage, so it allows a lower percentage of it to be used vs., say, VGLT. Treasury STRIPS were specifically mentioned in "The All Weather Story" as a possible way to lever the bonds, or have a leverage effect. Also reference taguscove's previous endorsement for EDV earlier in the thread, and the use of EDV by applianroad.com for their risk parity portfolio. With it being available at such a low cost by Vanguard, it's really a slam dunk entry for this portfolio.
Last edited by azanon on Mon Jun 24, 2019 2:21 pm, edited 1 time in total.

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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by klaus14 » Mon Jun 24, 2019 1:27 pm

azanon wrote:
Mon Jun 24, 2019 10:56 am
columbia wrote:
Mon Jun 24, 2019 10:07 am
What risk (in your portfolio) is EDV designed to counter act?
EDV (Extended duration Treasuries - Treasury STRIPS) is being used to represent "Nominal Bonds" in this All-Weather portfolio and, as such, fits into the "rising inflation" and "falling growth" quadrants of the environmental box framework. EDV was specifically selected as the best way to represent "Nominal Bonds" without resorting to leverage, so it allows a lower percentage of it to be used vs., say, VGLT. Treasury STRIPS were specifically mentioned in "The All Weather Story" as a possible way to lever the bonds, or have a leverage effect. Also reference taguscove's previous endorsement for EDV earlier in the thread, and the use of EDV by applianroad.com for their risk parity portfolio. With it being available at such a low cost by Vanguard, it's really a slam dunk entry for this portfolio.
I think you meant to say falling inflation (or deflation).
Last edited by klaus14 on Mon Jun 24, 2019 1:29 pm, edited 1 time in total.

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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by klaus14 » Mon Jun 24, 2019 1:29 pm

azanon wrote:
Mon Jun 24, 2019 9:42 am
In fact, were I to use a vanilla 60/40, I might even prefer LTPZ over, say, BND (or just "regular" TIPS such as SCHP).
Curious why do you say that?
I have a "normal" portfolio and use SCHP for TIPS, reason being 5-10 year inflation breakeven is much less than 30 year.

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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by azanon » Mon Jun 24, 2019 2:21 pm

klaus14 wrote:
Mon Jun 24, 2019 1:27 pm
azanon wrote:
Mon Jun 24, 2019 10:56 am
columbia wrote:
Mon Jun 24, 2019 10:07 am
What risk (in your portfolio) is EDV designed to counter act?
EDV (Extended duration Treasuries - Treasury STRIPS) is being used to represent "Nominal Bonds" in this All-Weather portfolio and, as such, fits into the "rising inflation" and "falling growth" quadrants of the environmental box framework. EDV was specifically selected as the best way to represent "Nominal Bonds" without resorting to leverage, so it allows a lower percentage of it to be used vs., say, VGLT. Treasury STRIPS were specifically mentioned in "The All Weather Story" as a possible way to lever the bonds, or have a leverage effect. Also reference taguscove's previous endorsement for EDV earlier in the thread, and the use of EDV by applianroad.com for their risk parity portfolio. With it being available at such a low cost by Vanguard, it's really a slam dunk entry for this portfolio.
I think you meant to say falling inflation (or deflation).
Thanks for catching that Klaus - yes that's correct.

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

Post by azanon » Mon Jun 24, 2019 2:23 pm

klaus14 wrote:
Mon Jun 24, 2019 1:29 pm
azanon wrote:
Mon Jun 24, 2019 9:42 am
In fact, were I to use a vanilla 60/40, I might even prefer LTPZ over, say, BND (or just "regular" TIPS such as SCHP).
Curious why do you say that?
I have a "normal" portfolio and use SCHP for TIPS, reason being 5-10 year inflation breakeven is much less than 30 year.
I was agreeing with that - I interjected and said SCHP instead of LTPZ per above. But between LTPZ and BND, I'd probably pick LTPZ.

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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by Coato » Mon Jun 24, 2019 8:55 pm

azanon wrote:
Mon Jun 24, 2019 9:42 am
Coato wrote:
Mon Jun 24, 2019 8:35 am
Azanon,

I am quoting you here to avoid that giant yellow wall.

"I'm not tracking you guys attempt to reduce to 4 ETFs, but to answer this question, the 35% vs. 20% in my portfolio was to risk balance the 4 quadrants. This is not the only explanation (because there were other variables), but you could pretty easily confirm that EDV is more volatile than LTPZ, so it's reasonable to expect it to have a lower percentage. Remember, it's risk balancing, not % weight balancing."

This is a legitimate question form someone that has never strayed from CDs/Short Treasuries: If LTPZ has a duration of 22 years and EDV has a duration of 23 years why is the volatility different?
TIPS have inflation protection built into the product, where nominal treasuries do not. So at the same duration, TIPS are much safer than very long duration nominal bonds, relative to unexpected inflation.

EDV, quite frankly, should be used very cautiously, and I would say only for portfolios specifically designed to balance the special risk they'll bring. I believe even Vanguard says its only for professional or even institutional use? (?) Anyway, my portfolio is designed for it, but I wouldn't recommend adding it as the "40%" to a 60/40 portfolio, for example. But LTPZ? That'd probably be ok. In fact, were I to use a vanilla 60/40, I might even prefer LTPZ over, say, BND (or just "regular" TIPS such as SCHP).
A couple of quick notes. I re-read (or actually read to understand) Alex Shahidi's book on Risk Parity today to refresh myself.

1. He had the volatility of Long Term Tips and Long Term Treasuries about even. (11% for Long TIPs and 10% for Long Treasuries.) The data he used was the synthetic TIPs data from Bridgewater that they used to help the Govt. develop the vehicle, and it was generated/synthesized back to 1927. Now it could be that his definition of Long Treasuries is different than EDV too. Just passing along he had them even. (He had equities at 19%)

2. For that pesky box on Rising Growth, Rising Inflation, Shahidi mentioned that an unlevered Real Estate investment would work. The reason being that it isn't easy to just drum up new buildings in times of rapid growth and inflation, so you have the same scarcity factor at work. Though this would not be as volatile as Commodities (he placed it at about the same ring as Corporate Bonds in the Rising Growth, Falling Inflation box). Since I have access to the TIAA RE fund I could use this instead of gold and commodities. Bernstein's "Deep Risk" made a good case that Gold doesn't hedge inflation all that well, and it's hard to find someone to say something positive about CCFs so that makes me feel better.

3. It is interesting how closely this actually begins to resemble the Swensen Lazy portfolio, although the percentages and volatility are different. He seemed to think TIPs, Treasuries and TIAA RE would interact well with a broad equity base, and that seems to work with this construct too. It's always nice to see broad agreement from different sources.

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Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by azanon » Tue Jun 25, 2019 7:44 am

Coato wrote:
Mon Jun 24, 2019 8:55 pm
azanon wrote:
Mon Jun 24, 2019 9:42 am
Coato wrote:
Mon Jun 24, 2019 8:35 am
Azanon,

I am quoting you here to avoid that giant yellow wall.

"I'm not tracking you guys attempt to reduce to 4 ETFs, but to answer this question, the 35% vs. 20% in my portfolio was to risk balance the 4 quadrants. This is not the only explanation (because there were other variables), but you could pretty easily confirm that EDV is more volatile than LTPZ, so it's reasonable to expect it to have a lower percentage. Remember, it's risk balancing, not % weight balancing."

This is a legitimate question form someone that has never strayed from CDs/Short Treasuries: If LTPZ has a duration of 22 years and EDV has a duration of 23 years why is the volatility different?
TIPS have inflation protection built into the product, where nominal treasuries do not. So at the same duration, TIPS are much safer than very long duration nominal bonds, relative to unexpected inflation.

EDV, quite frankly, should be used very cautiously, and I would say only for portfolios specifically designed to balance the special risk they'll bring. I believe even Vanguard says its only for professional or even institutional use? (?) Anyway, my portfolio is designed for it, but I wouldn't recommend adding it as the "40%" to a 60/40 portfolio, for example. But LTPZ? That'd probably be ok. In fact, were I to use a vanilla 60/40, I might even prefer LTPZ over, say, BND (or just "regular" TIPS such as SCHP).
A couple of quick notes. I re-read (or actually read to understand) Alex Shahidi's book on Risk Parity today to refresh myself.

1. He had the volatility of Long Term Tips and Long Term Treasuries about even. (11% for Long TIPs and 10% for Long Treasuries.) The data he used was the synthetic TIPs data from Bridgewater that they used to help the Govt. develop the vehicle, and it was generated/synthesized back to 1927. Now it could be that his definition of Long Treasuries is different than EDV too. Just passing along he had them even. (He had equities at 19%)

2. For that pesky box on Rising Growth, Rising Inflation, Shahidi mentioned that an unlevered Real Estate investment would work. The reason being that it isn't easy to just drum up new buildings in times of rapid growth and inflation, so you have the same scarcity factor at work. Though this would not be as volatile as Commodities (he placed it at about the same ring as Corporate Bonds in the Rising Growth, Falling Inflation box). Since I have access to the TIAA RE fund I could use this instead of gold and commodities. Bernstein's "Deep Risk" made a good case that Gold doesn't hedge inflation all that well, and it's hard to find someone to say something positive about CCFs so that makes me feel better.

3. It is interesting how closely this actually begins to resemble the Swensen Lazy portfolio, although the percentages and volatility are different. He seemed to think TIPs, Treasuries and TIAA RE would interact well with a broad equity base, and that seems to work with this construct too. It's always nice to see broad agreement from different sources.
1. Long-term Treasuries (T-Bonds), and Zeros (Treasury STRIPS) are not the same thing. The former is a commonly used, relatively low risk (at least compared to stocks) investment that pays interest, and the latter is a very risky, rarely used investment that offers no interest payments because they mature at par. My portfolio does not use T-Bonds, it uses Zeros, so yeah those comments would not be applicable.

2. I looked at REITS and they came fairly close to making the cut, and would fit where you said they would, but ultimately my backtesting showed that Commodities and EM credit (especially local currency) worked better (lower correlation vs. the other asset classes, and comparable volatilities). Also, since I put heavy emphasis on trying to duplicate Bridgewater specifically, I put Commodities and EM credit higher up since they're actually used as examples in "The All Weather Story" whereas REITs are not.

Regarding Gold specifically, Dalio's been pretty strongly outspoken about it, going so far as to imply portfolios without it are "making a big mistake."

3. I hope you don't mind if i disagree with you regarding similarities of Risk Parity strategy to the Swensen portfolio. Swensen's default portfolio for consumers is 70% equities (yes I'm including the REITs), which is the cornerstone thing that Risk Parity is trying to move away from. And that brings up another strike against REITs - at the end of the day, they're stocks too.

> BTW, i haven't read that Alex Shahidi book. I'll have to see if I can find it for cheaper than it is on Amazon. The library maybe?

Coato
Posts: 167
Joined: Wed Oct 21, 2015 4:34 pm

Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by Coato » Tue Jun 25, 2019 8:30 am

I don't mind if you disagree, I'm looking for myself too, not trying to improve your portfolio. My wife is likely to outlive me by 30 years and hates this stuff so my design is going to need to be simple and logical, and in asset classes she understands.

Swensen
My view on the Swensen portfolio is that it looks different if you see TIAA RE as direct real estate, which makes the portfolio less of an equities play. You are right in that he doesn't equalize risk: 50% equities with only 15% in Intermediate Treasuries and vanilla TIPS and 20% in Real Estate, however he employs the same ideas of a hedge in each of the three other quadrants. The extent of that hedge is the difference.

Convergence
One of my strongest convictions is to use only treasuries for bonds and I feel confident in this because of the thinking of Swensen, Swedroe and Dalio converging. While they might have different views on the amounts, all of their thinking about corporate debt matches. I feel the same convergence in the thinking of Swensen's portfolio and this Risk Parity concept. Equities drive return with a hedge portion of treasuries for deflation, TIPS for Stagflation and Real Estate for runaway inflation. So he is thinking along the same lines as far as building a porfolio for four situations, he just doesn't make all four economic regimes equal. (Which is an important idea of Risk Parity I grant.) Swensen's thinking is closer to Bernstein here, since Bernstein critiques the Permanent Portfolio in Deep Risk for not recognizing that all four of Harry Browne's economic regimes are not likely to occur with equal likelihood and duration. I enjoy connecting the ideas of thinkers I respect and it makes me more comfortable in what we do. This also might be me imposing a pattern by plucking out the thoughts I like from various people and graphing them onto a line.


On Shahidi's book, he isn't looking at safety of return but the volatility of a class during stress and his 1927-2013 data set saw an 11% number for Long TIPs and 10% for Long Treasuries. (Neither duration defined.) It's a good simple read and he basically explains the Bridgewater philosophy/framework for retail investors and hides the math. I usually resent books that have a summary at the end of each chapter, but I thought this one was worth a read.

Topic Author
azanon
Posts: 2558
Joined: Mon Nov 07, 2011 10:34 am

Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by azanon » Tue Jun 25, 2019 8:50 am

Coato,

Just a FYI, I just hopped over real quick and compared VGLT (Vanguard's LT Treasuries) to EDV on Portfolio Visualizer. Average standard deviation for the former is 11.18% vs. 19.57% for EDV. So EDV is 75% more volatile. So I didn't intend to imply that regular LT Treasuries are more volatile than LT Tips, rather I was explaining why EDV specifically is held in lower percentage compared to LTPZ in this portfolio. Yeah sure, had I used VGLT, i'd need a higher percentage which would cause the portfolio to take a significant expected return hit since I'd have to lower other percentages in the portfolio.

If you're looking for "easy" for your wife and like Swensen, then maybe consider the portfolio I picked out for my wife (she's using it for her Roth IRA, but I told her to put everything in it if I pass). I selected Vanguard's Managed Payout Fund, which is very Swensen like, at least that it claims to be using an Endowment-type strategy. So not only is it a balanced fund, but it has a monthly payment feature (a smoothed 4% constant percent) where she literally doesn't have to do anything but have the deposits go into her checking account. That's about as easy as it gets. Now granted, the portfolio isn't perfect, but it's definitely diversified, and will protect my wife from many of the snares that are out there.

Coato
Posts: 167
Joined: Wed Oct 21, 2015 4:34 pm

Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by Coato » Tue Jun 25, 2019 9:31 am

azanon wrote:
Tue Jun 25, 2019 8:50 am
Coato,

Just a FYI, I just hopped over real quick and compared VGLT (Vanguard's LT Treasuries) to EDV on Portfolio Visualizer. Average standard deviation for the former is 11.18% vs. 19.57% for EDV. So EDV is 75% more volatile. So I didn't intend to imply that regular LT Treasuries are more volatile than LT Tips, rather I was explaining why EDV specifically is held in lower percentage compared to LTPZ in this portfolio. Yeah sure, had I used VGLT, i'd need a higher percentage which would cause the portfolio to take a significant expected return hit since I'd have to lower other percentages in the portfolio.

If you're looking for "easy" for your wife and like Swensen, then maybe consider the portfolio I picked out for my wife (she's using it for her Roth IRA, but I told her to put everything in it if I pass). I selected Vanguard's Managed Payout Fund, which is very Swensen like, at least that it claims to be using an Endowment-type strategy. So not only is it a balanced fund, but it has a monthly payment feature (a smoothed 4% constant percent) where she literally doesn't have to do anything but have the deposits go into her checking account. That's about as easy as it gets. Now granted, the portfolio isn't perfect, but it's definitely diversified, and will protect my wife from many of the snares that are out there.
We have CalSTRS pensions that I think will do what your wife's Roth does with a smoothed payout. In theory, because we both inherit each other's pension, that pension stream should really cover all needs. (The pensions will be double our current annual spending.)

I am attracted to the ideas you have espoused because this portfolio would be a "what if" portfolio designed to weather whatever would destroy/damage the California Teacher's Pension system. It's why I am moving away from our Bernstein No Brainer: whatever could destroy that pension would also probably lash a portfolio that has all of its risk in equities. I am just starting to think about this problem, which is wy I have enjoyed reading this thread so much.

Omar333
Posts: 2
Joined: Thu Dec 06, 2018 2:26 pm

Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by Omar333 » Sat Aug 24, 2019 3:57 pm

Diversification is one of the key pillar of All-weather, which is very well described here in recent Dalio post: https://www.linkedin.com/pulse/diversif ... ray-dalio/

In the post, he shows how "equal weight" approach (i.e. 5% among 20 countries, rebalanced annually) is a good thing. While I find the logarithmic scale of the returns chart misleading towards the statement, I generally agree with the approach and dont want to be biased in the allocations towards US markets (especially in next 10y).

While the question to which countries add is more or less simple. Here one can go for the "high growth" countries for equities, for which Ray published 10y predictions in other book (China, India, etc.).

The real question Im struggling with is the balance within All weather portfolio, once you start doing equal weight diversification for bonds and stocks, by countries. I think, one should balance each country equally by bonds / equity (55% vs. 30% from 85% total), otherwise I would get a wrong risk balance by some countries. All weather portfolio seems to ignore this and just buy and diversify in each asset class as much as possible. Any one understand the logic behind?

One way is to do a balance simply on a high level same way with bonds allocation between US and EM as with Equities. But all these ETFs are generally market cap weighted and thus are biased towards large allocation today.

My currrent solution Im thinking about: use futures which are accessible to me (SP500, Gold) and use the leverage for country equal weight by iShares equity ETFs by countries (China, India, Brazil) etc. For the Debt (Nominal and Inflation-linked), its more comlicated. Global ETFs are all biased with allocation towards US (i.e. IGIL - https://www.ishares.com/uk/individual/e ... rough=true).

lianeber
Posts: 3
Joined: Thu Sep 05, 2019 8:41 am

Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by lianeber » Thu Sep 05, 2019 9:56 am

Hi everyone, I want to give a humongous THANK YOU for those involved in this, especially azanon. Im not a financial expert but I know how to read and follow the right people. And my logic after learning about Ray Dalio was... why isnt everyone following his investment strategy?... anyways, I also am educated enough in investing to realize that Tony Robbin's mix was really not covering for high inflation. And with Dalio ringing the bell about inflation for the past months-years... I searched and searched and finally found this awesome board.
So... thank you!

Additionally I have a question that I hope is not too dumb. I have been applying the mix that is recommended on here for some time now and I love the stability and slow but steady growth, especially as the markets get choppy and it maintains a stable performance. So I decided to increase my stake and go as far in as my broker will allow. Initially I had my nest egg invested (around 20k now, broke millenial here) but now im also investing on margin, maintaining the same mix and I can almost double my position.
So the question is: Does margin investing with the same mix screw up the risk parity? My guess is that since I invest and therefore borrow in Euros, if the euro shoots up then I may lose some value... so in that sense I'm a little over-exposed? If so, is it too complicated to re-balance properly according to the risk-parity? Answers without too much technical detail will be greatly appreciated.

klaus14
Posts: 238
Joined: Sun Nov 25, 2018 7:43 pm

Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by klaus14 » Thu Sep 05, 2019 1:15 pm

lianeber wrote:
Thu Sep 05, 2019 9:56 am
Hi everyone, I want to give a humongous THANK YOU for those involved in this, especially azanon. Im not a financial expert but I know how to read and follow the right people. And my logic after learning about Ray Dalio was... why isnt everyone following his investment strategy?... anyways, I also am educated enough in investing to realize that Tony Robbin's mix was really not covering for high inflation. And with Dalio ringing the bell about inflation for the past months-years... I searched and searched and finally found this awesome board.
So... thank you!

Additionally I have a question that I hope is not too dumb. I have been applying the mix that is recommended on here for some time now and I love the stability and slow but steady growth, especially as the markets get choppy and it maintains a stable performance. So I decided to increase my stake and go as far in as my broker will allow. Initially I had my nest egg invested (around 20k now, broke millenial here) but now im also investing on margin, maintaining the same mix and I can almost double my position.
So the question is: Does margin investing with the same mix screw up the risk parity? My guess is that since I invest and therefore borrow in Euros, if the euro shoots up then I may lose some value... so in that sense I'm a little over-exposed? If so, is it too complicated to re-balance properly according to the risk-parity? Answers without too much technical detail will be greatly appreciated.
margin investing is NOT the proper way to lever a risk parity portfolio.
It's probably the most expensive way. How much interest are you paying? You are probably paying more than the expected return of the portfolio :!:

Better for a retail investor to use futures or leveraged ETFs (See this thread as an example: viewtopic.php?f=10&t=272007)

lianeber
Posts: 3
Joined: Thu Sep 05, 2019 8:41 am

Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by lianeber » Fri Sep 06, 2019 8:14 am

klaus14 wrote:
Thu Sep 05, 2019 1:15 pm
lianeber wrote:
Thu Sep 05, 2019 9:56 am
Hi everyone, I want to give a humongous THANK YOU for those involved in this, especially azanon. Im not a financial expert but I know how to read and follow the right people. And my logic after learning about Ray Dalio was... why isnt everyone following his investment strategy?... anyways, I also am educated enough in investing to realize that Tony Robbin's mix was really not covering for high inflation. And with Dalio ringing the bell about inflation for the past months-years... I searched and searched and finally found this awesome board.
So... thank you!

Additionally I have a question that I hope is not too dumb. I have been applying the mix that is recommended on here for some time now and I love the stability and slow but steady growth, especially as the markets get choppy and it maintains a stable performance. So I decided to increase my stake and go as far in as my broker will allow. Initially I had my nest egg invested (around 20k now, broke millenial here) but now im also investing on margin, maintaining the same mix and I can almost double my position.
So the question is: Does margin investing with the same mix screw up the risk parity? My guess is that since I invest and therefore borrow in Euros, if the euro shoots up then I may lose some value... so in that sense I'm a little over-exposed? If so, is it too complicated to re-balance properly according to the risk-parity? Answers without too much technical detail will be greatly appreciated.
margin investing is NOT the proper way to lever a risk parity portfolio.
It's probably the most expensive way. How much interest are you paying? You are probably paying more than the expected return of the portfolio :!:

Better for a retail investor to use futures or leveraged ETFs (See this thread as an example: viewtopic.php?f=10&t=272007)

I'm paying 1.25%, not too bad.

Im jut getting my feet wet in this subject and its too early for me to go into the leveraged ETFs and futures world. But thanks for the reference I will keep reading on that and get involved once I understand them well (especially understand how to apply that with a risk parity all-seasons portfolio). Also fair to mention that I live in the netherlands where I have less ETFs available, for different prices, and I have to do every transaction manually on a language I dont speak (online investment services here seem to be 2 decades behind). So in conlcusion, any additional layer of complexity for me is a headache.

Anyways my question is still open for anyone who has input: Does margin investing with the same mix screw up the risk parity? if so, is it a significant enough impact that I should worry about?

klaus14
Posts: 238
Joined: Sun Nov 25, 2018 7:43 pm

Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by klaus14 » Fri Sep 06, 2019 3:45 pm

lianeber wrote:
Fri Sep 06, 2019 8:14 am
klaus14 wrote:
Thu Sep 05, 2019 1:15 pm
lianeber wrote:
Thu Sep 05, 2019 9:56 am
Hi everyone, I want to give a humongous THANK YOU for those involved in this, especially azanon. Im not a financial expert but I know how to read and follow the right people. And my logic after learning about Ray Dalio was... why isnt everyone following his investment strategy?... anyways, I also am educated enough in investing to realize that Tony Robbin's mix was really not covering for high inflation. And with Dalio ringing the bell about inflation for the past months-years... I searched and searched and finally found this awesome board.
So... thank you!

Additionally I have a question that I hope is not too dumb. I have been applying the mix that is recommended on here for some time now and I love the stability and slow but steady growth, especially as the markets get choppy and it maintains a stable performance. So I decided to increase my stake and go as far in as my broker will allow. Initially I had my nest egg invested (around 20k now, broke millenial here) but now im also investing on margin, maintaining the same mix and I can almost double my position.
So the question is: Does margin investing with the same mix screw up the risk parity? My guess is that since I invest and therefore borrow in Euros, if the euro shoots up then I may lose some value... so in that sense I'm a little over-exposed? If so, is it too complicated to re-balance properly according to the risk-parity? Answers without too much technical detail will be greatly appreciated.
margin investing is NOT the proper way to lever a risk parity portfolio.
It's probably the most expensive way. How much interest are you paying? You are probably paying more than the expected return of the portfolio :!:

Better for a retail investor to use futures or leveraged ETFs (See this thread as an example: viewtopic.php?f=10&t=272007)

I'm paying 1.25%, not too bad.

Im jut getting my feet wet in this subject and its too early for me to go into the leveraged ETFs and futures world. But thanks for the reference I will keep reading on that and get involved once I understand them well (especially understand how to apply that with a risk parity all-seasons portfolio). Also fair to mention that I live in the netherlands where I have less ETFs available, for different prices, and I have to do every transaction manually on a language I dont speak (online investment services here seem to be 2 decades behind). So in conlcusion, any additional layer of complexity for me is a headache.

Anyways my question is still open for anyone who has input: Does margin investing with the same mix screw up the risk parity? if so, is it a significant enough impact that I should worry about?
What's the yield of your bonds?

lianeber
Posts: 3
Joined: Thu Sep 05, 2019 8:41 am

Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by lianeber » Wed Sep 11, 2019 4:22 am

klaus14 wrote:
Fri Sep 06, 2019 3:45 pm
lianeber wrote:
Fri Sep 06, 2019 8:14 am
klaus14 wrote:
Thu Sep 05, 2019 1:15 pm
lianeber wrote:
Thu Sep 05, 2019 9:56 am
Hi everyone, I want to give a humongous THANK YOU for those involved in this, especially azanon. Im not a financial expert but I know how to read and follow the right people. And my logic after learning about Ray Dalio was... why isnt everyone following his investment strategy?... anyways, I also am educated enough in investing to realize that Tony Robbin's mix was really not covering for high inflation. And with Dalio ringing the bell about inflation for the past months-years... I searched and searched and finally found this awesome board.
So... thank you!

Additionally I have a question that I hope is not too dumb. I have been applying the mix that is recommended on here for some time now and I love the stability and slow but steady growth, especially as the markets get choppy and it maintains a stable performance. So I decided to increase my stake and go as far in as my broker will allow. Initially I had my nest egg invested (around 20k now, broke millenial here) but now im also investing on margin, maintaining the same mix and I can almost double my position.
So the question is: Does margin investing with the same mix screw up the risk parity? My guess is that since I invest and therefore borrow in Euros, if the euro shoots up then I may lose some value... so in that sense I'm a little over-exposed? If so, is it too complicated to re-balance properly according to the risk-parity? Answers without too much technical detail will be greatly appreciated.
margin investing is NOT the proper way to lever a risk parity portfolio.
It's probably the most expensive way. How much interest are you paying? You are probably paying more than the expected return of the portfolio :!:

Better for a retail investor to use futures or leveraged ETFs (See this thread as an example: viewtopic.php?f=10&t=272007)

I'm paying 1.25%, not too bad.

Im jut getting my feet wet in this subject and its too early for me to go into the leveraged ETFs and futures world. But thanks for the reference I will keep reading on that and get involved once I understand them well (especially understand how to apply that with a risk parity all-seasons portfolio). Also fair to mention that I live in the netherlands where I have less ETFs available, for different prices, and I have to do every transaction manually on a language I dont speak (online investment services here seem to be 2 decades behind). So in conlcusion, any additional layer of complexity for me is a headache.

Anyways my question is still open for anyone who has input: Does margin investing with the same mix screw up the risk parity? if so, is it a significant enough impact that I should worry about?
What's the yield of your bonds?


I appreciate your help but I dont think you are addressing my question, and asking for my yields is changing the subject.

Im looking for a portfolio that is "time-proof" and can do well in any economic "weather", as the title of this forum indicates. This means that the performance of any of those particular assets (like my bonds) in this particular moment in time (like now) should not change the allocation of my portfolio.

Omar333
Posts: 2
Joined: Thu Dec 06, 2018 2:26 pm

Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by Omar333 » Wed Sep 11, 2019 9:04 am

Hi,

Adding leverage is rational and wont screw up anything if you keep the same asset shares as they should be, your leverage fees are not high and you manage the leverage execution risk well.

Bigger risk in my opinion, is to be long bonds and stock today in US & EU. All weather only build on US exposure is not good today. Dalio mentioned several times recently that bonds and equities will most probably not do well in next 10y.

I have now position in selected UK equities & gold, silver, usci at 15%. Leaving the bonds out completely for now.

Im looking to start building China all weather, and add other high-growth countries like India, Brazil, Mexico. But its hard to keep the equity/bond ratio right, especially with inflation bonds.

Will post my progress.

klaus14
Posts: 238
Joined: Sun Nov 25, 2018 7:43 pm

Re: Improving the Dalio/Robbins All-Seasons Portfolio

Post by klaus14 » Fri Sep 13, 2019 5:57 am

lianeber wrote:
Wed Sep 11, 2019 4:22 am
klaus14 wrote:
Fri Sep 06, 2019 3:45 pm
lianeber wrote:
Fri Sep 06, 2019 8:14 am
klaus14 wrote:
Thu Sep 05, 2019 1:15 pm
lianeber wrote:
Thu Sep 05, 2019 9:56 am
Hi everyone, I want to give a humongous THANK YOU for those involved in this, especially azanon. Im not a financial expert but I know how to read and follow the right people. And my logic after learning about Ray Dalio was... why isnt everyone following his investment strategy?... anyways, I also am educated enough in investing to realize that Tony Robbin's mix was really not covering for high inflation. And with Dalio ringing the bell about inflation for the past months-years... I searched and searched and finally found this awesome board.
So... thank you!

Additionally I have a question that I hope is not too dumb. I have been applying the mix that is recommended on here for some time now and I love the stability and slow but steady growth, especially as the markets get choppy and it maintains a stable performance. So I decided to increase my stake and go as far in as my broker will allow. Initially I had my nest egg invested (around 20k now, broke millenial here) but now im also investing on margin, maintaining the same mix and I can almost double my position.
So the question is: Does margin investing with the same mix screw up the risk parity? My guess is that since I invest and therefore borrow in Euros, if the euro shoots up then I may lose some value... so in that sense I'm a little over-exposed? If so, is it too complicated to re-balance properly according to the risk-parity? Answers without too much technical detail will be greatly appreciated.
margin investing is NOT the proper way to lever a risk parity portfolio.
It's probably the most expensive way. How much interest are you paying? You are probably paying more than the expected return of the portfolio :!:

Better for a retail investor to use futures or leveraged ETFs (See this thread as an example: viewtopic.php?f=10&t=272007)

I'm paying 1.25%, not too bad.

Im jut getting my feet wet in this subject and its too early for me to go into the leveraged ETFs and futures world. But thanks for the reference I will keep reading on that and get involved once I understand them well (especially understand how to apply that with a risk parity all-seasons portfolio). Also fair to mention that I live in the netherlands where I have less ETFs available, for different prices, and I have to do every transaction manually on a language I dont speak (online investment services here seem to be 2 decades behind). So in conlcusion, any additional layer of complexity for me is a headache.

Anyways my question is still open for anyone who has input: Does margin investing with the same mix screw up the risk parity? if so, is it a significant enough impact that I should worry about?
What's the yield of your bonds?


I appreciate your help but I dont think you are addressing my question, and asking for my yields is changing the subject.

Im looking for a portfolio that is "time-proof" and can do well in any economic "weather", as the title of this forum indicates. This means that the performance of any of those particular assets (like my bonds) in this particular moment in time (like now) should not change the allocation of my portfolio.
Margin borrowing is effectively a short position on cash (~short term bonds) which changes the risk profile.
For example if you hold short term bonds in your portfolio and also pay margin, basically both cancels each other and in essence you are burning money.
leverage only makes sense if it's cheap. its price is relative to the bonds.
For example if your long term bonds are -0.50 and you are paying 1.25% for margin, you are paying 1.75 for duration exposure which is significant (bond futures are almost zero cost)
If you want to get good opinions, i suggest sharing more details.

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