Testing the All Weather Portfolio

A subscriber requested a test of Ray Dalio‘s All Weather (AW) portfolio with different rebalancing frequencies, allocated to exchange-traded funds (ETF) as asset class proxies as follows:

30% – Vanguard Total Stock Market (VTI)
40% – iShares 20+ Year Treasury (TLT)
15% – iShares 7-10 Year Treasury (IEF)
7.5% – SPDR Gold Shares (GLD)
7.5% – Invesco DB Commodity Tracking (DBC)

To investigate, we test:

• AW portfolios rebalanced monthly (AW-1), quarterly (AW-3), semiannually at the ends of June and December (AW-6) or annually at the end of December (AW-12).
• As a benchmark, a 60%-40% VTI-TLT portfolio rebalanced annually (60/40-12).
• For comparison, the Simple Asset Class ETF Momentum Strategy equally weighted Top 2 portfolio (SACEMS EW Top 2), the Simple Asset Class ETF Value Strategy (SACEVS) Best Value portfolio and a 50%-50% combination of these two portfolios (SACEVS-SACEMS 50-50).

We consider the following gross performance metrics, all based on monthly measurements: average monthly return, standard deviation of monthly returns, compound annual growth rate (CAGR), maximum drawdown (MaxDD) and Sharpe ratio (with the 3-month Treasury bill yield as the risk-free rate). We also compare number of rebalance actions for each portfolio. Using monthly dividend-adjusted returns for the specified assets during February 2006 (limited by DBC) through December 2023, we find that: (more…)