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Testing the All Weather Portfolio

Posted in Strategic Allocation

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:

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 January 2019), we find that:

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