An investment strategy for all seasons
A THOUGHT TO CONSIDER
Investing can be nerve wracking at times. Markets can be extremely volatile. Pandemics, political upheaval, recessions, natural disasters, as well as general supply and demand can have a huge impact on market cycles. Sometimes one asset class or sector of the market may soar, while another falls flat.
In any investment portfolio, it is important to ensure that your money is managed in line with your specific needs and goals. It is also vital that you stick to your long-term objectives.
However, you can create a diversified investment portfolio that can be insulated from extreme volatility. This portfolio can perform well over the long-term, irrespective of the prevailing conditions.
Today we are going to look at a cautious approach to investing that can weather the storms and still give you the ability to generate real growth over time. It is called the ALL WEATHER INVESTMENT PORTFOLIO approach to investing.
PRACTICAL WEALTH BUILDING PRINCIPLE
Many years ago, I read a book by Tony Robbins called “MONEY – Master the Game: 7 Simple Steps to Financial Freedom”. In the book Tony shared an interview he had done with Ray Dalio on an investment strategy called THE ALL WEATHER PORTFOLIO.
Now just to give you some background:
Ray Dalio is the founder of Bridgewater Associates, one of the world’s biggest hedge fund managers. He grew up in a working-class Italian-American family, and as a young boy, he worked as a golf caddy, earning tips from his wealthier clientele. Ray started his career in investments on the floor of the New York Stock Exchange. In 1975 he started his company, Bridgewater Associates. Over the years, Ray has been a successful and respected investor.
By the way, I have recently read Ray Dalio’s book, Principles, which includes a treasure trove of principles he developed over his career that led to his success in business and investing.
In the book, Ray Dalio shares how he came up with the All Weather Portfolio. This has Ray’s investment strategies on how he aimed to manage his family’s personal wealth in a way that could withstand the storms. The All Weather Portfolio’s aim is to limit loss and deliver real growth over time through any financial climate — be it a bull or bear market, a pandemic or a recession.
The portfolio is basically a well-diversified cautious balanced investment portfolio and can be broken down as…
- 55% in fixed interest funds consisting of cash, short-term and long-term bonds
- 30% equities (shares)
- 15% in a mix of gold & commodities
According to the “Iwillteachyoutoberich.com” blog:
“Ray Dalio chose this long-term asset class mix based on his theory on economic seasons.”
According to Ray, there are four things that affect the value of assets:
- Inflation – the increase in prices for goods and services, and the drop in purchasing value of a currency.
- Deflation – the decrease in prices for goods and services.
- Rising economic growth – times when the economy flourishes and grows
- Declining economic growth – times when the economy diminishes and shrinks.
“Based on these elements, Dalio says that we can then expect four different seasons that the economy can go through.”
- Higher than expected inflation (rising prices).
- Lower than expected inflation (or deflation).
- Higher than expected economic growth.
- Lower than expected economic growth.
“So, he constructed a portfolio with assets that have performed well when each of those seasons occurred. The result is a diversified portfolio that can consistently earn you money while keeping you financially secure during bear markets.”
Today, I am not advocating that the All Weather Portfolio is the perfect strategy for you. Everyone has unique needs and objectives. But, the strategy of designing an investment portfolio that is defensive in times of uncertainty and that can make use of the opportunities that arise to generate good growth during the favorable seasons, is a good concept to consider.
The All Weather Portfolio has good diversification, with relatively low allocation to shares. This helps to reduce volatility and ensure a “defensive first” strategy that will minimize risk, while the gold and commodity exposure together with the share exposure give the portfolio the opportunity to generate good growth when markets rise. The fixed interest component in the portfolio counters the volatility of the share allocation, and this in turn creates a well-balanced mix that can “weather” any season.
According to Tony Robbins’ book MONEY, The All Weather Portfolio strategy has produced just under 10% p.a. in USD’s and has made money more than 85% of the time in the last 30 years.
You can build your own All Weather Portfolio by making use of a number of active and passive unit trust funds. However, I would suggest that you get some advice on how best to construct your portfolio.
It is also important that you rebalance your investment portfolio from time to time to maintain the right asset allocation mix.
Invest in seven ventures, yes, in eight; you do not know what disaster may come upon the land. (Ecclesiastes 11:2)
And just to add, the average low equity Cautious Stable Unit Trust Fund also has a diversified asset spread consisting of around 30% global and 70% in local assets with …
- Around 40% in equities and commodities
- Around 60% in fixed interest funds consisting of cash, short-term and long-term bonds
Cautious Stable Funds have a defensive first strategy that helps to insulate the portfolio from extreme volatility, while these funds aim to generate real inflation beating growth over the medium to longer term.
“The wise are cautious and avoid danger; fools plunge ahead with reckless confidence.” (Proverbs 14:16)
Why not consider building up a diversified CAUTIOUS BALANCED ALL WEATHER PORTFOLIO. Please get some advice but start building up a Wealth Portfolio that can set you and your family up for financial success over time.
MARKETS AND CYCLES:
The investment cycle: All markets go through cycles, both up’s and down’s. At times certain assets will go up and others will go down.
In economic terms, the downturn leads to a “trough”, where the business cycle basically hits the bottom before it begins to rise. When it reaches the top of its cycle it is known as the “peak”.
The business cycle therefore moves up and down and ends its cycle in peaks and troughs.
Have you heard of the saying that one should “buy low and sell high”? This is a strategy where you buy when the market is at a low price (at the trough) and sell them when they are at a higher price (peak).
While it is difficult to time the market and to predict when the market has hit its peak or trough, it is important that you do not cash in your investments in the “troughs”. It is also advisable to buy low when the market cycle is in a trough and only sell when it is at a high.
Markets go through cycles. It is therefore important to have a well-diversified balanced portfolio consisting of low risk short term assets and higher risk long term assets.
Savings are good for your short-term needs and investing is for the longer term. Over the long-term markets go through many peaks and troughs but over time it is the market cycle that creates the investment opportunity that can lead to exponential growth within your investment portfolio.
POWER QUOTES OF THE WEEK
“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.” (Robert G Allen)
While it is wise to build up a savings reserve to fund emergencies and short-term needs, you need to venture off the safe path and invest to build wealth. You can’t afford to keep all your funds in savings accounts that are barely earning interest, if your aim is to build wealth after all, when there’s no risk, there’s no reward. (Source: CreditDonkey.com)
WHAT DOES GOD HAVE TO SAY
Jesus gave us a blueprint formula for success:
“But seek first the kingdom of God and His righteousness, and all these things shall be added to you.” (Matthew 6:33)
The formula is simple:
Do not worry about material things or get distracted by the temporary cares of this world. Don’t pursue wealth and material things before God. In other words, before you strive for anything else, you need to make God your top priority and “seek first the Kingdom of God and His righteousness”. When you do, God will provide for your needs.
Make it your pursuit to live life with God as the backbone, with God at the center of everyday decisions and actions. Always put God first, spend time in prayer and in the Bible. Live to honor God in all you do. Strive to get to know Him and live to please Him in all you do, to live out Gods calling with a God centered life of loving God and loving people.
Simply, “seek first the kingdom of God and His righteousness”. When you do, God will provide for your needs.
Have you accepted Jesus as your Lord and Savior? If you want to start or restart your walk with God, click here to pray a simple prayer we have set up for you.
Father, I give you my life along with my burdens and failures. Lord Jesus, I ask you to be my Savior. Be the central part of my life. Today I choose to “seek first the kingdom of God and Your righteousness”. Lord, I put my life in your hands and want to please you in all I do. In Jesus name. Amen.
I would encourage you to build up a balanced “all weather” investment portfolio. But above all else, “seek first the kingdom of God and His righteousness”, and all your needs will be met by God.
Have a great week. God bless you.
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