Ray Dalio runs a highly successful multi billion dollar hedge fund, and is one smart cookie. In the investing community we are confronted with many portfolio choices. The Bogglehead approach is to use a concentrated stock portfolio to attempt to realize gains. I’ve written extensively about the danger in a concentrated stock portfolio, especially an inefficient concentrated portfolio like the BH3. The BH3 is an 80/20 stock bond portfolio with some global lipstick. If you characterize it any other way your kidding yourself.
I recently wrote an article about Harry Browne’s permanent portfolio and my efficient frontier mashup designed to further improve longevity and safety. Dalio created an All Weather portfolio which has some considerable homology to my Harry Browne mashup. Homology is a word that describes branching of entities from a common ancestor. I found it quite intriguing that my portfolio (sans BTC) is so similar to Dalio’s portfolio
VTI 37% EDV 15% BIL 43% GLD 5%
VTI 30% TLT 40% IEF 15% DBC 7.5% GLD 7.5%
Neither portfolio is concentrated in stocks. Mine has a cash position as the short term fixed component (which can be warehoused in interest bearing accounts), while Dalio uses short and long duration bond positions and Dalio has more exposure to commodities. My portfolio is on the efficient frontier with a 7% expected return and a 5% expected risk, Dalio has a 7.5% expected return and a 7.3% risk.
If you adjust the Dalio portfolio to sit on the EF the portfolio becomes:
VTI 35% TLT 18% IRF 42% and GLD 5% with an expected return of 7.6% and a risk of 6.3% very close to my 7%/5% portfolio.
If you Monte Carlo the efficient frontier adjusted Dalio portfolio you get:
This is a 30 year portfolio @ 4% withdrawal normal SORR. 9998/10,000 success rate.
This is 4% WR on a 50 year draw down. 97% success is very strong over 50 years at a 4% WR.
The reason I started looking at this is because a new attending contacted me in the PoF Facebook mentoring group about investing and I wanted to have alternatives with better risk profiles compared to what everybody else is doing. I have a hard time recommending something like an 80/20 mutual fund portfolio because of the problems with price discovery. One caveat is if bond yields go negative all bets are off. In that case I would probably stock up on gold and commodities DBA DBC and more GLD and dividend stocks. I can’t believe we are at a place where we even have to consider such a thing. The problem with this kind of portfolio is discipline. You have to be committed to staying the course. Because of the low volatility you won’t see monster upside years or monster losses. I would rebalance as needed.
This is truly an all season portfolio.