TLT - The Optimal All-Weather Portfolio: March 2024 Update

2024-04-08 10:00:20 ET

Summary

• All-Weather Portfolios are composed of a small number of funds with offsetting strengths and weaknesses, so that overall performance balances out in different market conditions, eliminating the need for any buying or selling.
• Last year, we introduced Julia (“Just Leave It Alone”), an AWP with higher return for the risk involved than any of the other well-known models.
• This year, we present a simplified and streamlined version of Julia with even better returns, and describe how to tune it to the individual investor’s preferred risk level.

Co-Authored with Total Return Investor

Revisiting Julia 2023

The concept of an All-Weather Portfolio – a portfolio that can perform satisfactorily in any market conditions, without any need for buying or selling – is not a new one. The “60/40” portfolio – 60% stocks, 40% bonds – is an idea that’s been around since at least the middle of the last century. According to the 60/40 theory, the prices of stocks and bonds tend to vary inversely, with one going up when the other is going down, so a portfolio balanced between the two should maintain a more even keel over time than pure stock or bond portfolios. Very broadly, the historical data bears out the 60/40 view. (For statistical details, please see our original article, The Search for an All-Weather Portfolio . )

Of course, if keeping an even keel is the objective, the obvious and immediate question is, does the 60/40 portfolio do the best possible job of it? Putting 60% of one’s capital in a broad stock market fund, 40% in a broad bond market fund, and expecting optimal performance, seems almost too easy (although Vanguard’s highly respected Vanguard Balanced Index Fund Inst (VBIAX), which implements the 60/40 strategy by simply following two broad-market indices, continues to be a respectable competitor). And indeed, as can be seen on the websites PortfolioCharts.com , LazyPortfolioETF.com , and OptimizedPortfolio.com , dozens of proposals have been made for better AWPs than the 60/40. In our preceding article, we set up a uniform framework for evaluating these AWPs, evaluated some of the most famous of them, and offered a statistically superior alternative of our own, “Julia.”...

For further details see: