Seaborn Hall, 2/29/20, short updated version

 

The portfolio below is based loosely on Ray Dalio’s All-Weather Portfolio Asset Allocations displayed in the chart below. Dalio’s portfolio is heavily weighted towards bonds (55%).

This type of portfolio demands a little more work than Dalio’s All-Weather Portfolio. If the occasional monitoring and rebalancing doesn’t fit your personality there are a number of other suggested portfolios on the Lazy Portfolio ETF page (the charts on this link give you 10-year returns, risk profile, and maximum annual drawdowns, a very useful site). 

Example – $100,000 portfolio: Allocate equally the top 3 in categories 1-2 + top 2 in categories 3-4 for a diversified 10 item portfolio. The more line item choices, the more diversified and the less return and less downside expected in the portfolio. Selections beyond the top 2-3 in each category are optional. The Goal is an Equities 40% – Alternatives 20% – Bonds 40% portfolio. For a lower risk allocation: Equities 30%; Bonds 40% (Long term 25%; short-medium term 15%); Alternatives 30%. Cost average into all categories and buy on market corrections when possible. ETFs listed in order of priority. This portfolio is designed to be held 3-5 years. This is a medium risk portfolio.

Disclosure: The portfolio choices and allocations below are provided for informational purposes only, they are not an investment recommendation, and the reader is advised to consult their own financial advisor before making investment decisions. There are other ETF choices that may be equal or better. Check back with this page every month for portfolio updates.

1 – Equities (Stocks) Allocation (40% target)

IWM    iShares Russell 2000 ETF

See Morningstar rating here

IOO     iShares Global 100 ETF

See Morningstar rating here

EEM    iShares MSCI (Morgan Stanley Capital International) Emerging Markets ETF

See Morningstar rating here

ARKK  ARK Innovation ETF

See Morningstar rating here

QQQ    Invesco QQQ [Technology] Trust

See Morningstar rating here

Notes: Buy equal allocations. QQQ and ARKK are riskier considering the high valuations in the Tech sector currently. (For example, see JP Morgan: Tech Sector In Bubble And Will Collapse). That said, they both have high upside, particularly ARKK. Either are optional depending on the investor’s risk tolerance. Some advisors believe Emerging Markets may have more upside and be a better value than US equites going forward (See Top Ten Reasons For Emerging Markets 2020). It is difficult to know whether to place EEM or ARKK in third priority position. A riskier portfolio might place priority on ARKK; a more conservative, diversified portfolio EEM. VTI, Vanguard Total Stock Market, is another option in the Equities category. VEA, Vanguard FTSE Developed Markets (100 largest stocks on UK market), is another option. Cost average in all categories and buy on market corrections, when possible.

2 – Bonds Allocation (40% target)

TIP       iShares TIPS (Treasury Inflation Protected Securities) Bond ETF

See Morningstar rating here

IEI        iShares 3-7 Year US Treasury

See Morningstar Rating here

TLH     iShares 10-20 Year Treasury Bond ETF

See Morningstar rating here

IGOV   iShares International Treasury Bond ETF

See Morningstar rating here

TLT      iShares 20 Year+ Treasury Bond ETF

See Morningstar rating here

Notes: 10% initial bonds allocation, equal allocations, to increase over the next five years to 40% through cost averaging in all categories. Allocate a heavier weight in TIP. Why international bonds? In a sustained US crisis that produces hyperinflation even US bonds will have high risk of devaluing or even collapsing. Having some international bond categories already up in your portfolio will give you alternative investment options for transfer.

3 – Alternatives Allocation: commodities, precious metals, real estate, MLP’s (20% target)

PIO      Invesco Global Water ETF

See Morningstar rating here

IGF      iShares Global Infrastructure ETF

See Morningstar rating here

VNQ    Vanguard US Real Estate ETF

See Morningstar rating here

GSG    iShares S&P GSCI Commodity Indexed Trust

See the Bloomberg description of the fund here

Notes: An international REIT (like VNQI) might be a good idea in the future as that market crests, declines, and bottoms. The US domestic real estate cycle is expected to top around 2025-26. General commodity or futures alternative ETFs could also be added here for greater diversification, though commodity funds in general have not done well over the last decade – this may make them a good contrary play at present. Wars have developed around water and water sources, and clean water, particularly, is in high need across the developing nations of the world. We consider water an essential ‘perfect storm’ investment. Another potential category here is Infrastructure. See this link for other suggestions. We are placing Infrastructure above Real Estate because we currently believe that Trump will be reelected and a US Infrastructure bill is likely to be passed in 2021.

4 – Gold/Silver Alternatives Allocation (included in Alternatives)

GLD     SPDR Gold Shares

See Morningstar ratings here

SLV     iShares Silver Trust

See Morningstar rating here

GDX    VanEck Vectors Gold Miners ETF

See Morningstar rating here

GDXJ  VanEck Vectors Junior Gold Miners ETF

See Morningstar rating here

Notes: Silver is undervalued relative to gold as of 2/20. Gold is a stronger purchase in the $1250/oz range or lower. Mining has more upside. We recommend owning some physical gold/silver in addition to ETFs since ETFs do not provide access to physical metals in a real, sustained crisis. There is also speculation that in a sustained crisis that, because of that fact, there might be runs on these types of funds that would cause them to crash.

5 – What About Cash And Forex?

Normally, cash allocation in a single portfolio is around 10% of the total invested in that portfolio. This gives you something for an emergency and also provides some funds to invest in the event of market corrections. Many investors allocate 20% or more to cash in the current environment because they believe the markets are overvalued and ripe for a major correction due to recession.

Our current philosophy is different – but that’s not to say that it is correct. We believe in a 5% allocation of cash and a 5% allocation to speculative investments (see below). This is based on our view that the stock market is driven by the 18.5 year real estate/bank leveraging cycle. Based on this view the markets are not likely to climax or top until around 2025-26 (this does not mean there will not be corrections – stock market corrections are normal – or, even an economic recession causing a sustained correction).

Notes: Some cash should be held in foreign currency. Some brokerage accounts have foreign currency options you can hold. Most brokerages have access to foreign currency ETF accounts. TIAA, formerly Everbank, has foreign currency money market accounts available. More in Part 2.

6 – Speculative Investments:* 2-3% Max Of Total Net Worth (optional)

Bitcoin, BTC

Ethereum, ETH

Notes: The beginning cryptocurrency investor may want to start with an account at the Coinbase Exchange. Instructions for opening cryptocurrency accounts can be found elsewhere on this site. A small allocation in crypto could be considered ‘alternative speculative.’ Actual Crypto ownership might be an essential speculative investment in a sustained crisis like hyperinflation (see links below). For more normal markets, the ETF ARKK in Equities sometimes represents the crypto space with allocations to Bitcoin or Blockchain based companies.

For more on use of crypto and other assets in crisis see, The First City In The World That Is Switching To Bitcoin, Melis, Medium; Also see, How Likely Is Hyperinflation In The US?, Seaborn Hall, Zero Hedge

*Investments in which the investor is prepared to lose 100% of their investment.

Conclusion**

With bonds currently yielding so little interest, our ‘Perfect Storm’ portfolio is designed to be more weighted in equities and alternatives. There is an initial 10% allocation to bonds that the investor will gradually increase over time, hopefully, as you sell off profitable equities, trimming and re-balancing each category within that allocation.

The goal is to buy more bonds each time interest rates move higher – over years, we believe – reaching the goal of about a 40% bond allocation, a 20% alternatives allocation, and a 40% equities allocation.

**For a somewhat similar portfolio allocation and risk model as the above, but with different and more traditional ETF choices, see the Merrill Lynch Edge Select Portfolio. Also see the Betterment Robo Advisor 50 Portfolio. These portfolios have about 10 line items, are well diversified and have more traditional ETF choices.

 

 

Seaborn Hall, AIF, has a degree in management from Georgia Tech, a Master’s degree and has studied at the doctoral level. He was formerly a Regional Director at a national top-50 RIA; he currently manages a family investment company, writes, and publishes the Common Sense Interpretation Websites.

 

Disclaimer: The author holds positions in most of the offerings in this model portfolio. This is an ongoing attempt at building a global, diversified portfolio that will weather a global ‘perfect storm.’ Check back with this page on at least a monthly basis. The author also has Coinbase and Kraken accounts and positions in Bitcoin, Ethereum, and Litecoin and other cryptos. This report should not be viewed as investment advice or a recommendation, but is for informational purposes only. Consult your own financial advisor for investment advice.

 

Dictionary:

Rebalance or Re-balancing (of the portfolio) – selling/buying to adjust to target allocations on a quarterly basis

Cost-average – To divide your total investment into equal tranches bought periodically over a length of time, usually months or more

Tranche – a set allotment of a larger total amount to be invested; each ‘tranche’ will be cost-averaged over a set period until you are fully invested

ETF – exchange traded fund – like a mutual fund holds a group of stocks/bonds etc but traded daily on markets and accessible to retail investors

REIT – Real Estate Investment Trust – holds a diversified array of real estate depending on goals and portfolio restraints, accessible to retail investors and traded daily

GSCI – Goldman Sachs Commodity Index

EAFE – Euro Australia-Asia Far East

FTSE – Top 100 UK Stocks

Blockchain – the coded element and process that is the digital foundation of most cryptocurrencies

MLP – Master Limited Partnership, a type of ownership in oil and gas lines and other assets that usually produces a high rate of annual interest or return

Bitcoin, Ethereum – types of cryptocurrency that depend on digital, coded blockchain for their utility and use

Forex – foreign cash exchange used to hold and trade cash in foreign currencies

Hyperinflation – usually defined as an excessive, sustained rise in monetary inflation over 50% per month in the local currency; as a comparison, current ‘official’ inflation in the U.S. is slightly less than 2% per year

Expense ratio – the cost for managing a fund that an ETF’s fund managers charge on a quarterly or annual basis; it is automatically removed from your profits or assets and is therefore known as a ‘hidden fee’ even though it is shown on each ETF’s prospectus

Perfect storm – a confluence of global multiple crises in each of five different areas: Economic, Political, Religious, War, and Geo-Physical

Correction – when the stock market goes down due to various market forces or a crisis; corrections of 10% are normal every year while 20% corrections occur every 2-3 years

 

Related Links

CS Coronavirus Epidemic Daily Update

Building The Global ‘Perfect Storm’ Portfolio, Complete Version, Common Sense Money

The Bernie Madoff Fraud: Five Lessons For Investors From The ‘Wizard Of Lies, Advisor Perspectives

I Wrote A Popular Piece On ‘Lessons From The Madoff Fraud,’ Then I Got Scammed — Here’s Why, Medium

How Likely Is Hyperinflation In The US?, Zero Hedge

Building The Global ‘Perfect Storm’ Portfolio, part 1