Portfolio Rebalancing – Part 2

Hey guys, I wanted to get back to you faster with the portfolio rebalancing but I was so busy with work I didn’t have time to write (just to think about it). So before presenting my idea of the portfolio, which has to take into consideration the moderate trait of my personality, and adding some spices from Ray Dalio’s all-weather portfolio, let’s see how this can behave during a simulation.

All-weather portfolio

Ray Dalio’s all-weather portfolio asset allocation comprises: 30%US Stocks, 40% Long term treasuries, 15% intermediate-term treasuries, 7.5% commodities, diversified, 7.5% gold and the visual representation is in the following picture. We described some risk probabilities in our last article from the portfolio rebalancing series (article found here).

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In an article written on Lazyportfolio the allocation is composed from 5 ETFs that are replicating each cattegory:

  • 30% US Stocks – VTI ETF
  • 40% Long term treasuries – TLT ETF
  • 15% intermediate-term treasuries – IEI ETF
  • 7.5% commodities, diversified – GSG ETF
  • 7.5% gold – GLD ETF

Using Portfolio Visualizer to make some simulations, we indeed reach the statistics presented. The single setting I took into consideration was a 6months portfolio rebalancing on a 30 years time scale (1981 – 2021).

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Another variant I found on optimizedportofolio recommends using mostly low-cost Vanguard funds.

  • 30% US Stocks – VTI
  • 40% Long term treasuries – VGLT
  • 15% intermediate-term treasuries – VGIT
  • 7.5% commodities, diversified – IAU
  • 7.5% gold – PDBC
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It looks more stable, but overall the stats looks the same. Unfortunately, the simulation is not going on for 30 years because PDBC was founded in December 2014. I think that if we build a portfolio with something close to the same composition, we could have a safer return from investment.

If we analyze each ETF/Fund that was used in this simulation, we will get the following risk categories:

  • 30% VTI – 4/5 Risk, can be considered medium to high risk – Stocks
  • 40% VGLT – 3/5 Risk, can be considered medium risk, long term investments – Bonds
  • 15% VGIT – 4/5 Risk, can be considered medium to high risk, medium term investments – Bonds, Treasuries, Annuities
  • 7.5% commodities, diversified – 3/5 Risk (in my opinion), can be considered a medium risk as long as you stay away from strange stuff
  • 7.5% gold – PDBC 2/5 Risk as things can happen to gold also.

In this case, I can tell that 2/5 risk is equivalent with some conservative to medium investments, 3/5 is clearly moderate and 4/5 is moderate with a small higher risk investment.

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Considering risk-based investments (and types) this can be a visual representation of the risk we are taking inside the all-weather portfolio, and I am good with it.

The next step now is to reproduce the same risk categories and try to match our current investments with this.

Our all-weather portfolio

Our current investments are in Crypto, Forex, Stocks, ETFs (only Stocks ETFs), P2P, Mutual Funds, and some Gold. We will not take the cash reserve as separate categories, instead, we will try to reserve 10% of each cash investment. (For example, if I have 2000USD in Stocks, a cash reserve of 200USD will be available)

I will not invest in commodities at this stage, so that leaves the Moderate percent of the pie for Bonds, Mutual Funds (as they are in Bonds, Treasuries, and Stocks) and I will map the P2P investments in the same category. Why do I map the P2P here? In my opinion, they are relatively safe investments, that pay a certain interest at a certain date (if everything goes well). The maximum delay I can get is 60days for the payment but is backed up by the buyback guarantee offered by Mintos. In my 3 years of experience with them, I did not lose any investment (if I was patient). Of course, I will give a better proportion to medium-term bonds than to P2P.

The conservative part is very simple, I will find 2 Gold ETFs to constantly invest and raise the investment. Maybe I will add a silver/cooper ETF also.

That leaves us with a 45% split for Forex, Crypto, Stocks, and ETFs. All the bonds I will buy will be for 3-5 years (at least investment) so I will match them in the first category. Will allocate 20% for Forex and Crypto without a clear line between them, as our high-risk investments. So then 25% goes to Stock and Stocks ETFs (again without a clear line).

This leaves us with the following image:

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  • 20% – Forex and Crypto Investments
  • 25% – Stocks and ETFs
  • 30% – Bonds and Mutual Funds
  • 17.5% – P2P
  • 7.5% – Gold ETFs (and maybe silver + Copper).

I think this is the allocation I am looking for. I will try to make a simulation with Portfolio Visualizer, maybe we can see how this kind of portfolio behaved for a longer time. This post is already 760 words long and counting, so I will put a stop here (sorry for the tease! ) and we will have the next part where we will discuss (hopefully) how this allocation performed during certain spam of years and how we are standing in % related to our current portfolio. then the next step will be to cut up the fat and stick it where we need it.

Also, it took me a while to write this article, as I started Sunday and now it’s Wednesday, and each day I wrote a little bit. But at least I came back faster than the last time :D!

Good luck everyone and see you soon in the next article!

Disclaimer: I am not a financial consultant! All the information you find here are my decision, I have taken at that moment, on my own analysis. I am open to any type of discussion about money. If you want to replicate my portfolio take into consideration that it is your money and you can have losses.

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