This risk-parity portfolio has experienced a 3-6% real return, based on backtest results, which is in line with the All-Weather portfolio. As this is a strategy post and not a tutorial, the code will not be dissected in great detail. But Ray Dalio’s All Weather Portfolio has some competition, ... During backtesting, Golden Butterfly ’s performance against a 100% stock market portfolio over the last 43 years found that GB had almost the same long-term real compound annual growth rate, but with 60% less volatility. Breaking up the returns shows how much of the performance has been driven by the past 30 years of falling interest rates. I would like to see the back test start in the70’s and end around 2004 and see what we get. Almost any long-term, rebalanced portfolio will perform pretty well over the decades if you stay diversified and follow the rules. I always say history helps provide clues to the risk involved with certain asset classes, not the future performance numbers. This portfolio backtesting tool allows you to construct one or more portfolios based on the selected asset class level allocations in order to analyze and backtest portfolio returns, risk characteristics, drawdowns, and rolling returns. Excluded All-Weather which added 2 more years to backtest. Some long term backtesting findings from the book: Tony Robbins said capital allocated to this All Weather Portfolio mix from 1984 through 2013 would have been profitable more than 86% of the time. So the allocation takes into account and encourages better investor behavior. Backtest Portfolio Asset Class Allocation. Jonathan Borwein. Any long-term asset allocation to risk assets that is systematically rebalanced and followed through over time will show solid performance numbers. Before we dive deeper into the strategy it is worth pointing out that this post will cover a few principles and topics that users might find useful to port to other algorithms. […] (More: Back-testing a Tony Robbins All-Weather Portfolio) […], […] Further Reading: Back-Testing the Tony Robbins All-Weather Portfolio […], […] investment analyst Ben Carlson showed, the current bond bull market skewed the returns of this portfolio by about 400 basis […]. That’s almost 60% better than the S&P. In our example, we will use the following ETF’s but you may wish to alter them: Finally, we will look re-balance bi-annually. As such, even if you are not interested in the all-weather portfolio, you should still be able to pick up a tip or two regarding: 1. Using the working assumption that there will be a wide range of possible outcomes and no one knows exactly what’s going to happen is an intelligent stance to take as an investor. 16 Pages Posted: 29 Feb 2016 Last revised: 20 Jul 2016. All that matters is what happens from here. Investors were placed on a risk-off mode as gold and long-term US treasuries saw their prices heading up while global equities have traded range-bound for the past year. The fact that a brilliant investor such as Dalio admits this fact tells you how hard investing truly can be (he has almost $150 billion under management). Saving and getting started is the first step that most don’t take and I hope Robbins is able to help in that respect. Finance). It’s the following through part that gets most investors. To add some more context, if you were able to invest the full $25,000 upfront, it would have resulted in about $35,000 equity by the end of the test and of course, without a magic wand we shouldn’t expect to get near that! It’s the following through part that gets most investors. The reason for this interest in Dalio is because of performance. As they say, the winners write the history books. It’s just as hard to stick with this strategy when the S&P returns 20+% as it is to stick with a heavier stock allocation when the S&P drops by the same amount. The Ray Dalio All Weather Portfolio is exposed for 30% on the Stock Market and for 15% on Commodities. We do very little here. A useful variation on Tony Robbins’ static allocations is to compare the 10-year T-note yield to the 10-year earnings yield on the S&P (that is, the inverse of Shiller’s CAPE, expressed as a percentage), and adjust stock and bond weights accordingly. We are able to use QuantConnect’s SetHolding()function which makes allocation a breeze and will handle all the complexity of working out the right sizes for each asset ourselves. If we’re going to pick 30 yrs, which is a reasonable timeline for a human, lets look at 1953-1983. What’s the worst 10 year return from a 50/50 stock/bond portfolio? When back-tested during the Great Depression, the All Weather Portfolio was shown to have lost just 20.55% while the S&P lost 64.4%. Harry Browne’s Permanent Portfolio (25% each in T-bills, T-bonds, stocks and gold) has been a steady, risk-averse performer. But I agree with you that investors have to comes to grips with losing money occasionally if they would like to earn higher returns over time. What’s the worst 10 year return from a 50/50 stock/bond portfolio? The launch of Tony Robbins’s new book, MONEY Master the Game, was conducted with a degree of public relations precision rarely found these days. The temptation to tinker just shifts to times when stocks are doing well. Tony Robbins’ 4 pieces of advice for financial advisers | Discover the Steps To Financial Freedom that will skyrocket you towards financial success. We use the first equity to make sure that the markets are open for trading on our ideal rebalance date. At worst it gets you a quick takedown of your talking points. Investing Philosophy A well-designed portfolio will grow and protect your money on autopilot so that you can focus your time and energy on the things in life that truly matter. In reality, it resulted in a $5,427.14 gain over the invested sum ($25,000 spread over 7 years with $10,000 upfront). But It’s a good book for the novice to take action and start moving money out of 401k pitfalls. Backtest Rookies Latest Posts About BTR Backtesting Tutorials Fumble through backtesting one step at a time with us. Great analysis. Fortunately, Ray goes on to provide a suggestion for the exact weightings. If inflation stays low from here that’s a good thing for bonds. The ‘All Weather’ Portfolio Make-Up. Note that if the markets are not open, QuantConnect will intelligently alter the date to ensure we don’t miss a re-balance. The link to the fund: http://www.alpsfunds.com/overview/HVPW. If you start this allocation today with 55% in bonds you will get crushed. Actually the historical data shows that stocks are up almost 3 out of every 4 years. In Defense of Risk Parity (Or Any Long-Term Strategy) - A Wealth of Common SenseA Wealth of Common Sense, Tony Robbins is a Brilliant Self-Help Guru, but a Terrible Financial Advisor | The Big Picture, The Hardest Question in Portfolio Management, You would have made money 86% of the time (so only four down years). There are many ways to support us and some won’t even cost you a penny. We just take a look at what the current month number is and if it is not a month that we want to re-balance in then we returnwithout doing anything else. As such, depending on which ETF you select, it can make it difficult to backtest through the tough times like the great recession. Usually in times of gloom and worsening outlook investors take the opportunity to … Backtest Rookies is a registered with Brave publisher! When stock earnings yields are high at market bottoms, the model will weight stocks more heavily. The ticker for the putwrite index fund is HVPW. Could always use that as a baseline allocation and make changes to fit your own circumstances as well. Q3 All-Weather is related to or competes with Capital Income, BlackRock Global, American Funds, American Funds, American Funds, Thornburg Investment, and GMO Benchmark. The rest of the code will not need to be updated as long as the entry “Equity 1” is still present. 3.65%. Investing in this same exact asset allocation earned 4% per year more in returns at roughly the same volatility profile. This method may not be perfect. All we do is make a log of any dividends received. Essentially, Ray explains that there are only really 4 market environments (which he calls seasons) that can move the price of an asset. Have you seen any calculations using option collars to generate income? My Modified Permanent Portfolio Backtest #2 (January 2005-June 2020) Additionally, each season is favorable to specific asset types. There are also the supporting arguments: gold couldn’t be owned by the public until 1975, the bond market has had an unprecedented run, etc. Before we dive deeper into the strategy it is worth pointing out that this post will cover a few principles and topics that users might find useful to port to other algorithms. I was just wondering if the way I described the difference in the asset allocation was correct. Thanks and I agree all historical data that goes way back needs a caveat attached. Fear or greed, pick your poison. It’s more about managing expectations. In the last 10 years, the portfolio obtained a 7.7% compound annual return, with a 5.88% standard deviation. the reality is that in terms of investing in the market, until the early 1980s, stocks, bonds and T-bills, especially in small amounts, were almost equally as expensive and difficult to buy and sell (everything considered) as gold. Those numbers could defintiely turn out to be outliers especially when compared to today’s starting values. First of all, let’s take a look at the results without adding any savings. Not so bad, but peeps wanna make that proverbial 10% per year. To order reprints of this article, please contact David Rowe at d.rowe{at}pageantmedia.com or 646-891-2157. (A Wealth of Common Sense) […]. Finance). 0x9a2f88198224d59e5749bacfc23d79507da3d431, QuantConnect: Ray Dalio’s All-Weather Portfolio, Click to share on Facebook (Opens in new window), Click to share on Twitter (Opens in new window), Click to share on Reddit (Opens in new window), Click to share on Pocket (Opens in new window), https://www.quantconnect.com/docs/algorithm-reference/scheduled-events, 30% in S&P500 or other indexes for diversification, Vanguard FTSE Developed Markets ETF (15%), iShares 7-10 Year Treasury Bond ETF (15%). A paper, "Good Day Sunshine: Stock Returns and the Weather", correlates the sunniness of days with changes in stock price. They act as portfolio stabilizers during economic downturns and stock market crashes. […] to the mean tells us, will likely not do that well in that future. Prior to then buying stocks or bonds in small amounts involved high minimums and large commissions for most investors. It’s a fairly simple, broadly diversified portfolio. In this strategy, use a scheduled event to we call the Rebalance()method (function) on the first trading day of each month. This is why a balance of the two is so important for long-term results. So for example, if stocks go up in value and Bonds dip, your stocks might now make up 50% of your total portfolio value but we only want them to make up 30%. However, it gets the job done. Any long-term asset allocation to risk assets that is systematically rebalanced and followed through over time will show solid performance numbers. As such, even if you are not interested in the all-weather portfolio, you should still be able to pick up a tip or two regarding: As mentioned above, the all-weather portfolio is a buy and hold strategy that allocates your assets in such a way that it should get you through different market regimes. Here is an interesting article about duplicating the All Weather portfolio using low-cost ETFs. Further, we will attempt to simulate saving money between each re-balance and investing that sum to see how that has an effect on the overall outcome. After this check, we optionally update our cash to add some savings into our account. So that will make the final figure look a lot more impressive than it is. After all, that is what the average retail investor is likely to want to do. However, the art of asset selection and re-balancing is often overlooked by us retail warriors especially with all the glitz and glamour of the latest hot indicator or the excitement of day trading a single instrument. I understand that losses are painful, but come on, the odds of stocks going up in an year are above 50%. Finally, we just loop through our all-weather dictionary setting our holdings to the appropriate weight. Putting the 50% fixed income portion all into intermediate Treasuries (say 3-year T-notes) captures about 2% in real return, without adding much volatility compared to the original barbell strategy. I didn’t sell everything off at the bottom, but that loss in a portfolio that was extensively backtested and said to be unlikely to ever lose more than 8% certainly prompted further study, and led me to the Permanent Portfolio (which lost 0.7% in 2008). Fortunately, this is a painless process. I was using the portfolio visualizer. Not bad – Final equity coming in at a respectable $14,037.20. We will start with an initial balance of 10,000 USD. Scheduling Events:How to re-balance every bi-annually. And while the win ratio and average loss Robbins lays out are impressive at first glance, when you break out the asset classes individually it makes sense (click to enlarge): Of course a bond-heavy portfolio is going to perform better in the down years – that’s what bonds are for. The defensiveness of the portfolio does provide the benefit of making it easier to stay invested during bad times, but it’s not a panacea. In addition to these options, we also have the self.all_weatherdictionary. The interviews that Robbins did with some of the greatest investors of all-time (Buffett, Dalio, Tudor-Jones, Ichan, Swensen, etc.) These are: Finally, he also notes that we should re-balance our portfolio at least annually. Both tests complement the backtest, in which one checks how a proposed investment strategy would have performed in the past. As you can see the results are very similar, in fact GAA outperforms All Weather, likely due to fees and transaction costs GAA doesn’t include in the backtest due to using index only data. Maybe I’ll take a look at that one later. They definitely didn’t know who Ray Dalio was. Here's a backtest going back to 2006 comparing the 2x AW above to the traditional All Weather Portfolio, a traditional 60/40 stocks/bonds portfolio, and the S&P 500 index. Find step by step tutorials, code snippets and reviews with a focus on Tradingview and Backtrader. He […]. The paper concludes that "sunshine is highly significantly correlated with daily stock returns. In a backtest covering the 30 years from 1984 through 2013, the All Seasons portfolio had an annualized return of 9.7% (net of fees) and only four years with a loss. Each one of these asset classes on its own has a pretty good winning percentage. I have my own data and models but take a look at this tool on the web that I use from time to time that it very helpful: Yes, that’s what I meant. I’m a big fan of the Canadian Couch Potato method myself. According to Money: Master the Game, this asset allocation, when back tested all the way from 1927 until 2013, has resulted in sizable growth with less volatility. Federal Reserve Economic Research (FRED) ,J.P. Morgan Asset Management, US Consumer Price Index All Urban Consumers, All Items, Seasonally Adjusted year-over-year. Thanks. Also, see here for a put writing strategy: http://econompicdata.blogspot.com/2015/09/the-case-for-put-writing-further.html, A putwrite index fund isn’t doing so good. Click on column header to sort table. The average investor has never heard of the All Weather portfolio until Tony Robbins released the book, “Money, Master the Game: 7 Simple Steps to Financial Freedom”. Have performed in the account volatility of 7.9 % investors whose account statements are kludged up with of! Look at real returns to make things realistic how much of the losses just... In his book money Master the Game: 7 simple Steps to financial Freedom i understand that losses are,. That add or take away only a few shares to balance the portfolio obtained a 7.7 % annual... 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