Ray Dalio, the founder of Bridgewater Capital, calls it the “all-weather portfolio” and it’s helped his investment management firm amass roughly $140 billion in assets.
Former Libertarian presidential candidate Harry Browne called it his “fail-safe investing” portfolio. Additionally, It just had its best three-month return ever. It returned 18%, far exceeding its average annual return of 7%.
Browne’s investing philosophy was that when times are good, stocks do well. Meanwhile, bad times are good for Treasury bonds, and gold does well during stagflation. Also, cash is king during a recession or crisis.
Since we don’t know what the future holds, Browne advocated for putting 25% of your portfolio into each asset class. He also suggests being prepared for whatever comes. With bonds, gold, and Treasury’s in your portfolio, you’ll underperform during a bull market. However, you can more than make up for it by softening the blow during a down market.
The “Cockroach” Portfolio
Back in 2012, Dylan Grice, a former strategist with SG Securities, called that type “the cockroach” portfolio. He dubbed it as such due to its ability to survive anything thrown at it.
“What I like best about cockroaches,” wrote Grice, “isn’t just their physical hardiness, it’s the simple algorithm they use to survive. According to Richard Bookstaber, that algorithm is ‘singularly simple and seemingly suboptimal: it moves in the opposite direction of gusts of wind that might signal an approaching predator.’ And that’s it. Simple, suboptimal, but spectacularly robust.”
Grice has calculated that for long-term investors, this type of portfolio has done at least as well as the traditional 60/40 stock and bond mix since the early 1970s. But most importantly, it managed to avoid any massive drawdowns.
And just like cockroaches, your first job is surviving as an investor, says Groce, while prospering is job number two.
A Similar Approach
Fortunately for investors who are looking for this type of portfolio, an ETF has recently launched that follows the same approach as the “cockroach” portfolio.
It’s called The Advanced Research Investment Solutions Risk Parity ETF (RPAR) and was launched last November. Alex Shahidi, the managing partner and co-chief investment officer, says they’re up to $620 million in assets so far.
He says the ETF has returned 12% so far this year compared to 1% for the S&P 500.
Most importantly, during the crash in March it fell just 15%, less than half of the drop in the S&P 500.
According to Shahidi, the fund is 25% stocks, 15% industrial commodities, 17.5% gold, 20% long-dated Treasury inflation-protected securities and 42% long-term Treasury bonds. Total exposure to the market is 120%, because the fund is 20% leveraged.
The stock mix is half U.S. and half overseas stocks, with the overseas portion tilted toward high volatility emerging markets.
Nobody knows what the market will do next, so Shahidi says you want to be prepared for any outcome. “You want to be diversified to (different) economic environments,” he added.
He did say that “If I had to pick an asset class for the next 10 years, it would be gold.”