Portfolio Construction: All Weather vs. Stock/Bond Mix

I’ve been looking for alternatives to traditional stock/bond mixes. Why?

Although “everyone knows” that “stocks go up in the long run”, that doesn’t mean most people can stomach the volatility. Can you really imagine seeing half of your money disappear overnight?

Also – although stocks have historically always done well over a 15 year time period, 15 years is a long time for a young guy like myself. My life will probably be radically different in 5-10 years!

So the traditional alternative is to temper the portfolio with bonds. But in this low interest rate environment, that causes a lot of drag on the portfolio and means that you get almost nothing in return. So I’ve been looking for alternatives.

One alternative that looks interesting is presented in “Money: Master the Game” by Tony Robbins where he interviews Ray Dalio.

Dalio gives a basic formula for an “All Weather” fund – one which doesn’t have the same volatility as a traditional stock / bond mix. Here’s the formula:

  • 30% Stock
  • 15% 10 Year US Treasuries
  • 40% 30 Year US Bonds
  • 7.5% Gold
  • 7.5% Other Commodities

The idea behind this portfolio mix is that with a traditional stock/bond portfolio usually when the world becomes a scary place, everyone just goes to cash (or to short term T-Bills) and it becomes a “risk-off” environment. This is exactly what happened during 2008. Dalio makes the point that the world is “long everything”

And what a weird portfolio. Over 50% bonds and only 30% stock. Must not return anything, right?

Curious, I decided to pull data from various ETFs and compare what would have happened over time with different mixes and contrast it to the All-Weather Fund.

  • 100% Stocks
  • 90% Stocks / 10% Bonds
  • 80% Stocks / 20% Bonds
  • 70% Stocks / 30% Bonds
  • 60% Stocks / 40% Bonds
  • 50% Stocks / 50% Bonds
  • All Weather Fund

For the Stock / Bond Mix, I used VTI and BND.

For the All Weather Fund, I used VTI, IEF + TLT for treasuries, GLD for gold, and DBC for a mix of commodities.

Back test went from Apr 2007 – May 2019. I used these dates because they were the max amount of data I could find (not all of these ETFs existed before these dates).

Here are the results:

That purple line is the All Weather fund. The other ones are stock/bond mixes. As you can see, the long term winner was the 100% stock mix (no surprise there). But the All Weather fund during the 2008 crash only had a max drawdown of 8%. On the other hand, you can see that if you had invested $100k right before 2008 you might be one year later sitting on only $60k. How scary is that!? For me, I know I would “puke” as the futures traders say.

Here’s a link to the data sheet:


I think the FI/RE movement has a lot of great things going for it, but one thing that is often underemphasized is that money is largely about self-knowledge, and that requires you to ask (and answer) questions such as:

  • Why does money causes such extreme emotions?
  • How do you handle drawdowns (both on a practical and emotional level)?
  • Have you spent enough time really planning out what you will do if things don’t go “to plan”?
  • Can you handle (and will you stay in the market) when your account has lost half its value?

I think many in the FI/RE movement can’t stomach these drawdowns and unconsciously move to Real Estate as an alternative to dampen the volatility (buy and hold RE seems to have more steady returns through cash flow).

Instead of getting tied up in a non-liquid asset that has high transaction costs (RE), why isn’t portfolio construction talked about more?

7 Levels of Investors

Having guideposts or a framework can often be useful for figuring out where you are going and where you are. I referred to the 7 Levels of Investors that John Burley originally put out that Kiyosaki made famous.

Here’s a link to that free e-book which I’ve found useful as a guide:


The table of contents should give you a pretty good idea:

Chapter 1- The Non-Existent Investor (Level 0)
Chapter 2 – The Borrower (Level 1)
Chapter 3 – The Saver (Level 2)
Chapter 4 – The Passive Investor (Level 3)
The “Gone into a Shell” Passive Investor
The “It Can’t Be Done” Passive Investor
The “Victim” Passive Investor
Chapter 5 – The Automatic Investor (Level 4)
Compound Interest – 8th Natural Wonder of the World
Chapter 6 – The Active Investor (Level 5)
Chapter 7 – The Capitalist Investor (Level 6)

For a slightly different, but more entertaining look, see Dan Lok’s presentation –

which is part of a larger series:

Some thoughts on Robert Kiyosaki + Rich Dad Poor Dad

A question in the FI/RE movement came up recently: “What do you think of Robert Kiyosaki”?

I’ve spent a lot of time studying Robert Kiyosaki. I think there are lots of good things (and some bad things) about him:

The Good:

* Investing is largely about psychology, and very little about “how to”. There are lots of ways to make money – it’s not hard to find any of them. But what distinguishes those who do from those who don’t? (My belief: It’s largely about psychology). So I think one of the key elements he’s trying to invoke is to get you to think for yourself, not to puppet back what he believes (or some strategy). I think this causes him to take an almost Socratic approach to how to he teaches. Instead of telling you “how” to do something, he’s often trying to get you to question your assumptions of the world you live in. (For instance: “Is your home really an asset?”, “Do housing prices always go up?”)

For instance, if you were told to buy index funds because the market always goes up over the long term, what happens that first day when you lose 25% of your savings after you’ve bought at the top? Some one with confidence in themselves and the strategy will stay in and ride it out. But someone who doesn’t have that confidence (but has done it because some “expert” told them to do it) will panic and realize the loss. (Ask me how I know!).

* He points out some of the flaws of the education system. I think one of the most obvious ones is that the educational system (aside from Montessori, and some weird ones on the fringes) are really trying to set you up to fit into a very specific mold – one that obeys authority and thinks there are “right” answers instead of seeing the world as a place of exploration, learning through failure, and lots of grey area.

I think the system leads to a lot of good in society (a hard working work force, etc), but leads to problems when investing (aka, “buy when others are fearful, sell when others are greedy” or “buy when theres blood in the streets”). So every one from warren buffet to sir john templeton, etc. understand the power of defying the crowd to make large sums of money (exactly how the system is trying to discourage you from thinking).

* He thinks education (although a reformed education) is one of the major keys to alleviating people from poverty (The story of his “poor dad” comes to mind).  I couldn’t agree more.

* He’s onto something between the idea of good vs. bad debt, and it’s obvious that this idea has made some people a lot of money (namely: Trump) – although obviously not the only way to play the game. I do wish he gave some more warnings about the power of leverage, though.

* I think he’s been a huge inspiration in terms of the FI/RE movement. In fact, I think I originally got inspired into FI though him.

* I think he’s right in pointing out some of the hypocrisy with how the rich have different rules that the poor/middle class when it comes to investing. (He notes how accredited investors are the only ones with access to the best deals that contain asymmetric risk/reward). Also, how Moody’s was really to blame about the housing market crash + MBS valuation, but instead the big banks took the rap for it.

* I think he’s generally right about gold and dollar devaluation, and in some ways saying the same thing a lot of other people in finance are saying re: a coming crash (for instance Ray Dalio – that all things go in cycles and we just haven’t experienced them yet since they haven’t happened to us or in our lifetime).

* I think his cash flow quadrant is one very useful way of thinking about how wealthy you can grow and the potential for growth + taxes. I also found one of his advisors books (“Tax Free Wealth”) very useful for understanding taxes.

* I really like his cash flow quadrant board game, which you can play for free online – and does provoke a new way of thinking about things.

* He points out John Burley’s stages of wealth. For me, it’s important to have a framework of where you are and where you can go.

* I do think he’s trying to do good things for people.

The Bad:

* I haven’t taken his training or courses, but they seem like a total scam. Not only do they charge a lot, they seem very thin in content. DANGER – STAY AWAY.

* His books are obviously thin on the “how to”. And the how to is clearly a necessary (although not sufficient) to being a good investor.

* I think his didactic style isn’t very good (at least for me). One thing that I’ve realized: I first need a plan, and only then, when I can’t follow it, I have to wonder “Why?” which leads me to my own psychology.

Instead, he approaches it from a psychological standpoint first, but I think most people aren’t ready for that.

* He is no savior and won’t give you “the answer”. I think this is what most people want (at least it’s what I wanted).

* I think he could give some ready made strategies that would work for the masses, but doesn’t. He + his wife Kim talk about debt pay down acceleration + have recycled the Dave Ramsey snowball style of quickly paying down debt, but it’s not obviously in any of his articles. I think someone like Dave Ramsey has actually done way more for people, despite Kiyosaki having a similar reach.


* I think he thinks the way a rich person does, and this often conflicts with a lot of the mindsets of the middle class, which is where I think most of the FI/RE movement is. For instance, I highly doubt Kiyosaki would ever be focused on savings rates. Why would you focus on saving when you could use your brain and just by thinking, make 10x what you’ve spent in the whole year?

* Interestingly, I think there are a lot of common ways that the rich and the poor think that would just appall many of the middle class. For instance, why would you ever work hard at something you don’t like to do? For more on this, see “The Millionaire Fastlane”. Also, consider Ray Dalio who at one time was broke, but it was OK because he was doing what he really liked to do. Also see CD Baby’s founder Derek Sivers tiny book.

I think many CEOs fall into this category.  The old joke: only a CEO would trade a 40 hour work week working for someone else in exchange for an 80 hour work week working for yourself.

* I’ve realized that one way you might look at things is in terms of “How much education does this require to do well?”. For instance, how much education does it take to buy stock and sell covered calls on the S&P vs. passively buying an index fund?  How much education does it take to raise private money in a JV deal vs. use your own money for a buy and hold 4 unit?