Set It And Forget It With The Ray Dalio All Weather Portfolio

Trading is taking advantage of market moves, price moving from one level to another. Short term, swing trading, and position trading, in a single instrument. If you are inclined to the long term view, position trading, taking the next step is asset allocation. Steve Burns gives a good account of this in The Ray Dalio All Weather Portfolio.

Ray Dalio designed an asset allocation that is supposed to be able to weather any economic storm, manage risk exposure, and make steady returns over the long term. He calls it the All Weather Portfolio and it diversifies by holding multiple asset classes: bonds, commodities, and stocks. Tony Robbins first made this portfolio popular in his book ‘MONEY: Master the Game‘ where he interviews some of the greatest financial minds and money managers.

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The All Weather Fund has a consistent track record of preserving capital and delivering yields year in and year out. A key part of this has been it allocating 40% of it’s capital to bonds. Well we are now in a world where many bonds have negative interest rates. This poses a problem for yield expectations, causing Dalio to expound, “You’d be pretty crazy to hold bonds right now.”

Going even further, he explains that bonds are debt instruments which pay fixed interest rates on assets with fixed cash face value and can see their value inflated away.
As he tells Yahoo Finance in Ray Dalio: Don’t Buy Government Bonds,

“This period, like the 1930-45 period, is a period in which I think you’d be pretty crazy to hold bonds. If you’re holding a bond that gives you no interest rate, or a negative interest rate, and they’re producing a lot of currency and you’re going to receive that, why would you hold that bond?”

Source: Yahoo Finance

Stormy waters lie in wait for financial markets in the coming decade. It will be interesting to see how the All Weather Fund fares without its mainstay instrument, government bonds.