Ray Dalio's all weather portfolio

Sailtheworld

Prism said:

Sailtheworld said:

Ray Dalio's portfolio has a capital allocation which differs from the market aggregate. Therefore he must be predicting a different future than the market. I suppose it depends whether someone following this approach thinks he's in a position to achieve this. I don't want to be mealy mouthed because he's obviously been a success but it seems to have been made from commissions on other people's trades.

The big warning sign is someone's name in a fund / portfolio plus the one size fits all approach.

Is there an aggregate though for asset allocation? Rather than predicting a possible future isn't this just based on what has happened in the past and therefore what might happen again going forwards?

Isn't looking at the past and surmising from that what might happen going forwards just another way of saying predicting the future?

In terms of aggregates take gold as an example. Gold is worth $10.9tn vs total global wealth of $360tn. The 'market' has looked at what happened in the past and decided a 3% asset allocation is about right. Deciding 7.5% is a better allocation is a big call.

Prism

Sailtheworld said:

Prism said:

Sailtheworld said:

Ray Dalio's portfolio has a capital allocation which differs from the market aggregate. Therefore he must be predicting a different future than the market. I suppose it depends whether someone following this approach thinks he's in a position to achieve this. I don't want to be mealy mouthed because he's obviously been a success but it seems to have been made from commissions on other people's trades.

The big warning sign is someone's name in a fund / portfolio plus the one size fits all approach.

Is there an aggregate though for asset allocation? Rather than predicting a possible future isn't this just based on what has happened in the past and therefore what might happen again going forwards?

Isn't looking at the past and surmising from that what might happen going forwards just another way of saying predicting the future?

In terms of aggregates take gold as an example. Gold is worth $10.9tn vs total global wealth of $360tn. The 'market' has looked at what happened in the past and decided a 3% asset allocation is about right. Deciding 7.5% is a better allocation is a big call.

On that basis though anyone that goes over 25% equities is also making a call. Bonds should be at least 2.5x that I don't think you can use the global wealth breakdown in any way to help decide on an allocation. 

We have to look at past situations to some degree and look for things that have worked, even if they don't going forwards. Otherwise its all complete guesswork.

kinger101

sixpence. said:

aroominyork said:

sixpence. said:

What do people think of hedged vs unhedged with regards to GBP currency risk? 

There are two questions there. 1). Do 'we people' think Sterling will go up or go down? Answer: no one knows, so who cares what us few think. 2) Should you hedge to take out the currency risk? Answer: people are generally against hedging equities, although I see merit in hedging part of them so that your returns better reflect the underlying investments. For bond funds I always want to hedge (although my strategic sterling bond funds can leave 30% unhedged). 

To hedge or not to hedge? That is the question 

Don't sit on the fence.

thegentleway

Sailtheworld said:

Ray Dalio's portfolio has a capital allocation which differs from the market aggregate. Therefore he must be predicting a different future than the market. I suppose it depends whether someone following this approach thinks he's in a position to achieve this. I don't want to be mealy mouthed because he's obviously been a success but it seems to have been made from commissions on other people's trades.

The big warning sign is someone's name in a fund / portfolio plus the one size fits all approach.

I thought Ray Dalio's All Weather was based on risk parity, not predictions about the market. Dalio identifies 4 seasons and hold assets that will do well for each of the 4 seasons. The allocation is calculated so each class contributes the same amount of volatility (risk parity). It can be deemed too conservative since historically we have experienced more growth than downturns. Portfolios like the Golden Butterfly try to address that.

bowlhead99

kinger101 said:

sixpence. said:
To hedge or not to hedge? That is the question 

Don't sit on the fence.

Sit on the hedge?

Sailtheworld

Prism said:

Sailtheworld said:

Prism said:

Sailtheworld said:

Ray Dalio's portfolio has a capital allocation which differs from the market aggregate. Therefore he must be predicting a different future than the market. I suppose it depends whether someone following this approach thinks he's in a position to achieve this. I don't want to be mealy mouthed because he's obviously been a success but it seems to have been made from commissions on other people's trades.

The big warning sign is someone's name in a fund / portfolio plus the one size fits all approach.

Is there an aggregate though for asset allocation? Rather than predicting a possible future isn't this just based on what has happened in the past and therefore what might happen again going forwards?

Isn't looking at the past and surmising from that what might happen going forwards just another way of saying predicting the future?

In terms of aggregates take gold as an example. Gold is worth $10.9tn vs total global wealth of $360tn. The 'market' has looked at what happened in the past and decided a 3% asset allocation is about right. Deciding 7.5% is a better allocation is a big call.

On that basis though anyone that goes over 25% equities is also making a call. Bonds should be at least 2.5x that I don't think you can use the global wealth breakdown in any way to help decide on an allocation. 

We have to look at past situations to some degree and look for things that have worked, even if they don't going forwards. Otherwise its all complete guesswork.

If using global wealth allocation as some sort of guide then you'd compare against total net worth. That might actually bring down the gold allocation to 3% and equities 25% but clearly that's not the basis of the allocation because Dalio doesn't know anything about how users of the portfolio might have allocated their wealth.

He's also not tailored it to people's timelines (as far as I can see) because if he was using the past to predict the future and knew someone had, say, a 50 year investing window ahead there would be substantially more equities at the front end.

That fund might be right for you and wrong for me or vice versa so maybe there is a substantial element of guesswork?

Sailtheworld

thegentleway said:

Sailtheworld said:

Ray Dalio's portfolio has a capital allocation which differs from the market aggregate. Therefore he must be predicting a different future than the market. I suppose it depends whether someone following this approach thinks he's in a position to achieve this. I don't want to be mealy mouthed because he's obviously been a success but it seems to have been made from commissions on other people's trades.

The big warning sign is someone's name in a fund / portfolio plus the one size fits all approach.

I thought Ray Dalio's All Weather was based on risk parity, not predictions about the market. Dalio identifies 4 seasons and hold assets that will do well for each of the 4 seasons. The allocation is calculated so each class contributes the same amount of volatility (risk parity). It can be deemed too conservative since historically we have experienced more growth than downturns. Portfolios like the Golden Butterfly try to address that.

He's cleverer than I thought. He know where my other assets are housed and how these might change with the 'seasons', he knows how many investment seasons I have ahead and he even knows my appetite for risk.

I don't particularly have a view on the components but all-weather implies a generic suitability which is just nonsense.

sixpence.

Sailtheworld said:

Ray Dalio's portfolio has a capital allocation which differs from the market aggregate. Therefore he must be predicting a different future than the market. I suppose it depends whether someone following this approach thinks he's in a position to achieve this. I don't want to be mealy mouthed because he's obviously been a success but it seems to have been made from commissions on other people's trades.

The big warning sign is someone's name in a fund / portfolio plus the one size fits all approach.

He has studied the market for years and come up with this. He does seem to know what he's talking about in interviews. This can't be simplistically opposed with the "historical gains does not indicate future gains" argument as he has done lots of conscientious research into what leads to economic growth / decline. I am inclined to adopt some methods, at least, from his approach. These are my current feelings. 

Thrugelmir

sixpence. said:

Sailtheworld said:

Ray Dalio's portfolio has a capital allocation which differs from the market aggregate. Therefore he must be predicting a different future than the market. I suppose it depends whether someone following this approach thinks he's in a position to achieve this. I don't want to be mealy mouthed because he's obviously been a success but it seems to have been made from commissions on other people's trades.

The big warning sign is someone's name in a fund / portfolio plus the one size fits all approach.

He has studied the market for years and come up with this. He does seem to know what he's talking about in interviews. This can't be simplistically opposed with the "historical gains does not indicate future gains" argument as he has done lots of conscientious research into what leads to economic growth / decline. I am inclined to adopt some methods, at least, from his approach. These are my current feelings. 

Investors in the US have only needed to hold the S&P 500 to achieve a 10% return on equities. No need as a consequence to expose themselves to additional risk.

sixpence.

@Sailtheworld It's not generic it's diversified across asset classes in a way that claims to be so strategically sophisticated that it can weather all economic downturns. There's a difference.