Author Topic: The "All Seasons" portfolio?  (Read 4543 times)


  • 5 O'Clock Shadow
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The "All Seasons" portfolio?
« on: November 01, 2017, 08:34:29 AM »
Recently read "Money: Master the Game" by Tony Robbins. In it, the "All Seasons" portfolio of Ray Dalio gets a starring role. One of the insights presented was (somewhat paraphrasing) "stocks are much more volatile/riskier than you think, so you need much less of them than you think". And the resulting stock component is 30%, which is very low compared to what I hear people go with around here. I get that stocks are risky but aren't they an asset class that has a net upwards trend, given long enough time? If you have a long investment horizon, wouldn't you want more of your portfolio capturing this upward swing? Is the point that losing any amount of money requires an even bigger comeback to break even, so that not losing money is a higher priority than largely following the market index?

The whole book before that section was one massive build up to that portfolio. So when it was revealed and I didn't get it, I felt like and idiot. But I'd rather be an idiot and learn :)


  • Walrus Stache
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Re: The "All Seasons" portfolio?
« Reply #1 on: November 01, 2017, 09:23:33 AM »
The All Seasons portfolio performs about 1.5% worse per year than 100% stocks. During the accumulation phase the worst case scenario for 100% stocks is about equivalent to the best case scenario for the All Seasons portfolio. All Seasons is safer for the withdrawal phase, but will likely not provide much growth in comparison.

Edit: Fixed typo.
« Last Edit: November 02, 2017, 05:54:20 AM by RWD »


  • Handlebar Stache
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Re: The "All Seasons" portfolio?
« Reply #2 on: November 01, 2017, 02:10:07 PM »
I think it is a bad idea. My basic tenets for investment portfolios are (probably in order) : At least 50% in stocks, not more than 50% in US stocks (or any other country), between 10% and 40% in bonds, include but don't generally overweight international stocks. The All Seasons portfolio breaks three of those four.

In particular, the 40% long term bonds is just a horrific idea. Recent history shows that long term bonds are just as volatile as stocks, while the longer history of the world shows they are more risky than stocks. On top of that, they are almost certain to have lower returns, probably much lower. They might be a good diversifier in small amounts (say, 20% or less) but 40% is just way too much. Even worse, intermediate term bonds are basically the same as long term bonds: the same situation that is bad for one is bad for the other.

On the stock side, there is just not enough. 30% stocks is not enough to give the returns you need, especially in the face of the other assets which have very little or no expected return. This should be at least 50%, ideally including international stocks.

Put them together and this is an under-diversified portfolio with low expected returns, but not lower risk than reasonable alternatives.


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Re: The "All Seasons" portfolio?
« Reply #3 on: November 01, 2017, 06:10:59 PM »
I personally appreciate how Dalio talks about diversifying for economic conditions rather than betting too heavily on stocks.  You don't become the manager of the world's largest hedge fund without bringing significant insight to the table, and his risk parity strategy is based on sound economic and portfolio theory principles.  That said, my biggest critique of the Robbins book is that the timeframe they selected to run the data conveniently crops out the worst years for the portfolio.  I talked a little about that and offered a bit more historical context here:
« Last Edit: November 01, 2017, 11:26:41 PM by Tyler »


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Re: The "All Seasons" portfolio?
« Reply #4 on: November 01, 2017, 11:03:40 PM »
In back testing going back to the 70s the All Seasons portfolio looks great. The wonders of back testing...

The All Seasons portfolio is very heavy in long term bonds, and this is why it looks so good when you backtest to the 70s. Since the 70s long term bonds have done great, primarily because interest rates were really high in the 70s and 80s and have been falling ever since. Those higher rates meant higher income returns. In addition, when rates fall the price of bonds go up, and this is amplified for long term bonds.

Back testing to the 70s, 40% of the all seasons portfolio was yielding 6-10% for the vast majority of the test with highs over 15%. Present day 40% of the portfolio is yielding 2-3%. I think it is a pretty safe assumption that the returns will be lower going forward.

It gets worse. If rates do rise then your existing bonds will fall in value, and this is amplified for long term bonds. With rates so low now if they did go up over the next few years 40% of your portfolio could easily have negative returns.


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