Backtested 80 Years

I wrote this blog to myself back in 2014 when Tony Robbins published his book called Money: Master the Game.

After reading this book above I got introduced to who Ray Dalio was and with all the financial advice I decided to invest in the Ray Dalio: All Weather/Seasons method.

I wrote the blog below in 2014 and I share thoughts with myself and just a reminder to myself of how and why I was going to execute it.

Up to this point I have been having great success with method and I want to share the method with you:

After careful consideration between active investing versus passive investing I finally decided that a passive investment style is the only sustainable investment strategy for myself as active investing is just too time consuming and does not guarantee better results.

I think solely investing in precious metals such as gold, the S&P 500 index fund or in the financial sector is a bad investment strategy as they are only equipped to handle one type of investment season. Any investor solely invested in only one of these assets is vulnerable to every other type of investment season.

The four things that move asset prices are:

1. Inflation
2. Deflation
3. Rising economic growth, and
4. Declining economic growth

The problem with only investing in precious metals like gold, the S&P500 Index or the Financial Sector is that you are only set to perform in one particular economic season.

From the above four seasons here are the assets that perform well during those seasons:

From this, Ray Dalio created his asset allocation called the All Season’s Portfolio.

Gold 7.5%
Commodities 7.5%
Stocks 30%
Intermediate US Bonds 15%
Long Term US Bonds 40%

This strategy, after being back tested, made an average return of just under 10% (9.72%) for the past 80 years.

The all seasons portfolio weathered the financial storm of 2008 with a loss of only -3.92% compared to the S&P 500 index which lost -37% and Gold which lost -25%. Although they both recovered it would have been a bumpy ride to hold while this was occurring.

Here I picked the financial products that will fit the all seasons portfolio. My strategy is to pick the lowest cost financial products which John Bogle‘s Vanguard Funds and other low cost ETFs have made possible.

7.5% of SPDR Gold Shares (GLD)
7.5% of Power Shares DB Commodity Index Tracking Fund (DBC)
30% of Vanguard S&P 500 ETF (VOO)
40% of Vanguard Long Term Bond ETF (BLV)
15% of Vanguard Intermediate Term Bond ETF (BIV)

Annually you must readjust the portfolio allocation to continue to match the same percentages.

To conclude, the greatest folly for an investor is to just sit indecisive on the sidelines and have their savings eaten up by inflation and lose out on all the great opportunities and returns that good investing rewards up with,

-Dave

11 replies on “Backtested 80 Years”

I am confused with DBC. Its done nothing but move down for the past 15 years. Is there data that stretches back further than that?

I also invest with this passive strategy EXCEPT I invest 7.5% in the Utility ETF VPU instead of the commodities ETF. Utilities kick out a decent dividend and are a pretty stable investment

Leave a Reply

Your email address will not be published. Required fields are marked *