More on Ray Dalio's 'All Weather Fund' allocation -
Apparently it took Dalio 10 years to perfect his 'All Weather Fund' approach, and he has his entire family fortune (approx $18 bil) invested using this asset allocation.
According to Robbins, Dalio back tested this allocation going back 75 years, and it performed phenomenally well, even during the 1970s stagflation and the 2008 crisis. He said the worst year was a loss of under 4%. Apparently Dalio also uses a certain amount of leverage on the bond side in order to make the entire portfolio risk neutral.
Of course we've had a 4 decade bull market in bonds since they peaked in 1982. So that won't be repeated, but Dalio back tested to 1945 and his allocation worked well even when interest rates were rising. The key to his allocation is getting the entire package 'risk neutral', by which I think he means having the asset classes as uncorrelated as possible. In another video Dalio explains how his hedge fund Bridgewater is constructed the same way, with each bet as uncorrelated to the others as possible.
One thing I've noticed about these famous investors is their obsession with controlling risk. They may look like wild gunslingers, but what they do is more like arbitrage, where bets may individually be high but are counterbalanced off each other to achieve a low risk in the overall package.
Dalio said a great advantage to this approach is on the emotional side, since with the risks being balanced, the overall volatility is muted and thus it's much easier to 'stay the course'.
AI
