You might have found yourself one evening looking online for “How to invest money” or “Investment for beginners”, and wondering what the heck will you do with that money on your current account that you do not need. Investing in stocks is high risk, but you hoped to find something safer. Cryptos currencies? Even worst risk wise, you might just lose everything the next time the Bitcoin goes down. You could consider keeping the money in the bank, but the interest nowadays is close to zero. Let’s spend it and enjoy life today! The future is so uncertain…
When it comes to investment, many more options available to you. They all involve some risk, but that is the price of having a reward too. Long-term wealth can hardly be created without at least some risk!
We live in an uncertain world, but at the same time, money has never been so abundant. We live in a world where knowledge might solve some of your problems, and while personal finance is a lot about mindset and limiting self-beliefs, having a proper strategy will help you get where you want.
Over the last few years, I have read books and listened to people like Jim Rohn, Warren Buffet, Tony Robbins, Ray Dalio and many other entrepreneurs and successful businessman talking about money management and personal wealth. And the surprising outcome is that we also live in a world where risk can be highly reduced while keeping good returns. They are multiple ways to achieve that, but the one I want us to focus on today is called: All-Weather Portfolio (or All-Seasons). It is a type of portfolio called Risk Parity.
That portfolio was created by Ray Dalio, he created the most successful Hedge Fund, he is a billionaire and also an author of a wonderful book: Principles: Life and Work that I highly suggest to anyone seeking wisdom and timeless principles to guide their life.
That portfolio is built to be performing in any “seasons” (more on that below) of our economy and according to Dalio, there are four of them. With that portfolio, you end up having a “safe” long-term investment that historically returned 8-10% per year on average, with low risk and few bad years (compared to the market). That type of investment is perfect if you want to have money for your old time, as you will slowly, but surely, benefit from compounding.
Each quadrant below is a season, and in each quadrant, you have the kind of financial assets that are performing well in that season. Each season (quadrant) should have 25% of the risk. NOT 25% of your money, 25% of RISK. To make it clear, these are the four seasons:
- A season of Higher than expected Economic GROWTH
- A season of Higher than expected INFLATION (rising prices)
- A season of Lower than expected Economic GROWTH
- A season of Lower than expected INFLATION (deflation)
In one of his interview with Tony Robbins, Ray Dalio gave the following assets repartition for an All-Weather Portfolio for somebody like you and me:
- 30% Stocks (also called Equities)
- 15% Intermediate US Bonds (7 to 10 years)
- 40% Long Term US Bonds (20 to 25 years)
- 7.5% Gold & 7.5% Commodities
The percentages might vary a bit over time and these numbers are a few years old, but it is a portfolio with 25% of the risk for each season.
A few last words, this portfolio is recommended to balance every 6 to 12 months. Also to be able to benefit from compounding, it is highly suggested to re-invest your gains. If you can a monthly, quarterly or yearly basis, when you rebalance, add more money to it if you can afford it.
I am by no mean a financial advisor, and I am encouraging you to consult a financial advisor before making any investment as you might lose real money.
I wanted to share that portfolio with you because I keep hearing fears and worries about the future, while it can be seen as pretty bright if looked at differently. I am personally finalizing the last bit of paper work to be able to invest in such portfolio, and I will do it with an initial capital of 3000 euros. Before investment, I have read books and articles but also watched YouTube video on that very portfolio. I would suggest not to invest unless you have educated yourself first. I will share some of these resources below.
The rest is up to you to figure out!
- Blog Article from Tony Robbins’ website: The End of the Bull Market
- A book about Personal Finance, including All-Weather Portfolio: MONEY Master the Game: 7 Simple Steps to Financial Freedom by Tony Robbis
- Blog Articles from Dalio’s Hedge Fund blog: The All Wheater History and Risk Parity
- How the Economic Machine Works (Youtube – Ray Dalio)