My revised version of retail All Weather

So I was looking at Tony Robbin's All Weather portfolio (the percentages were given by Ray Dalio). But there were many flaws to this portfolio such as underperformance compared to the S&P 500 and bad holdings to hedge against recessions and inflation. So I decided to revise the portfolio a bit by adding a bit more leverage to the etfs and changing some of the holdings. I was only able to backtest the portfolio back till 2011 and so far it has been closely matched with the S&P 500 yet has a US market correlation of 0.66, a sharpe ratio of 1.39, and a Sortino ratio of 2.66. It only went down by 7.88% at March compared to the S&P's 20%. It's worse year was only -3.67%. So I am fairly confident in this portfolio. My only concerns is the China vs US conflict fucking up the returns on my portfolio as this portfolio relies too much on US bonds and equities. Another concern is whether this portfolio is able to hedge well enough against inflation or any future recessions as I am only able to backtest this portfolio back to 2011. I plan on using this portfolio for my future Roth IRA sometime in the future. So here is the construction and tell me what you think:

SSO -30% (2x leveraged S&P etf to capture bull market returns/make up for the lack of returns from the previous retail all weather)

UST -15% (2x leveraged 7-10 yr US bonds to mitigate the volatility of SSO and also to boost returns)

VGLT -40% (long term US bonds, same etf as seen in the original retail all weather)

VPU -8% (US utilities etf, performs well during recessions and certainly better than commodities. Also more stable)

FXF -7% (Swiss Franc etf, used this instead of gold as the franc is a strong currency and Swiss's neutrality is attractive to investors during periods of panic. Also gold's performance as a hedge against inflation or recessions is often unreliable)

P.S: I'm an absolute noob when it comes to portfolio construction so don't judge me too badly. Also I would really appreciate any feedback on the allocation percentages, holdings, and/or any flaws u see within the portfolio.

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Comments (3)

Most Helpful
  • Analyst 1 in HF - EquityHedge
Apr 6, 2021 - 8:59pm

I went through the phase of trying to profit off NAV degradation in the levered ETF space when I was in HS. Understanding skew in the options curve and backwardation of futures curves are important as you learn about investing going forward. 

Your thinking here is obviously naïve and there are a few issues. In theory it does work though. The issue is it can never be run at size and it does account for the borrow fee, also blows up sometimes. Dont put serious money into shorting these instruments but keep learning about investing and developing a process for evaluating companies. Real money is very rarely made in derivatives without exposing yourself to black swans which blow up your portfolio. 

I recommend you try and learn about investing from a Ben Graham or George Soros via books instead of Tony Robbins, also Dalio is an idiot (well spoken but his words are worthless)

Best of luck going forward!

Apr 7, 2021 - 12:26pm

Ok so the real issue are the leveraged etfs. Given the disparities between derivative pricing and actual pricing of securities/indexes, the leveraged etfs have the possibility of not moving alongside its expected price, which makes it a risky long term investment as there is a higher potential for the portfolio to blow up. Is this rational correct?

So I guess my next question is how can I boost the returns of the portfolio to match the returns of the s&p500 without leveraged etfs? Or should I just invest in the S&P500 knowing that my portfolio can't passively match the market while also facing lesser volatility?

I would try investing in individual equities or make macro bets but that would require a lot of effort in the long run as it requires continuous research and I just want to passively invest. Additionally, I don't trust my judgement unless I dedicate a lot more time to my portfolio. There's also the problem of beating the market and facing downturns since most times investors cannot predict recessions but rather react to it.

I guess another way is to dedicate like 0.01% of the all weather portfolio each month to options in order to add a bit of leverage but then again there is high maintenance. So I don't know what I should do.

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