One Portfolio forever

There are various portfolio models designed by large investors, let’s see which one is that forever for you.

Let’s start with the easiest of these portfolios.

60-40 Portfolio

The idea is simple 60% stocks, 40% bonds.

John Bogle was founder of Vanguard and creator of the first index fund. He has always talked about the importance of avoiding market timing, diversifying your portfolio, minimizing commissions and staying on course. (Hey, that’s what I recommend too 😉).

The Classic 60-40 is made up of two funds: a total equity fund and an intermediate bond fund. Stocks are meant to drive returns, while bonds are selected to reduce volatility and make the ride smoother. Bogle suggests that the percentage of shares can vary based on the age of the investor, with young investors holding up to 80% and retirees holding only 50%. But he’s also a huge fan of simplicity and suggests sticking with a 60-40 wallet for life is really all you need.

*An interesting note about the Classic 60-40 is that Bogle was never a fan of international markets. He believed that “the United States is the most productive country in the world”.

Results over years:

  • World 60-40 compound annual return: 6.24%, standard deviation 9.86%
  • U.S. 60-40 compound annual return: 7.86%, standard deviation 9.33%

This portfolio can help us as an initial idea, we can create better portfolios withe greater returns and lower volatilities.

Permanent Portfolio

The Permanent Portfolio is based on the idea that while the future is unknowable, the economy fluctuates between a few known states: prosperity, recession, inflation and deflation. While some portfolio managers apply the idea of “risk parity” to balance volatility risk across assets, Harry Browne believed in using the same idea to balance economic risk. In this way it’s born his portfolio forever. Therefore he chose four assets that he considered uniquely qualified to respond positively to each of the four economic conditions.

  • Prosperity: actions
  • Recession: cash
  • Inflation: gold
  • Deflation: long-term treasury bonds

Consequently, Brown has equally weighted the four assets to protect and grow his money, regardless of what happens in the market. And the resulting portfolio has proven to be one of the most consistent ever recorded with reliable returns, low drawdowns, and high withdrawal rates.

U.S. Permanent Portfolio compound annual return: 6.34%, standard deviation 6.30%

All Weather Portfolio

Ray Dalio is the founder and chief investment officer of the world’s largest hedge fund, Bridgewater Associates.

Dalio and his Bridgewater team concluded that while individual assets are unpredictable, so they react in understandable ways based on cash flows in the prevailing economic environment. They organized those environments into four quadrants:

Ray Dalio Chart

By filling each quadrant with assets that respond to all economic conditions and balancing the weights of assets to achieve risk parity for each situation, Dalio has designed a portfolio that can be successful no matter what happens in the markets.

  • 30% of the total stock market
  • 40% long-term bonds
  • 15% intermediate bonds
  • 7.5% of raw materials
  • 7.5% gold

All Weather Portfolio: compound annual return: 7.23%, standard deviation 7.02%

Probably Dalio’s All Weather portfolio would need some adjustment compared to the last 20 years of low rates. In any case, it’s a great forever portfolio to have in case we don’t want to create one ourselves from 0.

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