Ray Dalio's All Weather Portfolio (vs. slowly investing a chunk of money)

[amattie]

My wife and I recently started moving money into the stock market with the basic plan to buy the eMaxis Slim Whole World Stock fund on a monthly basis with whatever monthly savings we have. No problem there.

But we also have a certain chunk of cash sitting in the bank which came in part from selling our apartment (aside, it pained me to have too much equity in a home in Japan, so we got that cash out and bought a house with 100% mortgage), and I want to move a bunch of that into the stock market as well, for simplicity lets say 5M yen.

I have heard that statistically one is better off doing a one-off lump sum investment rather than dollar cost averaging a chunk of money in over time -- I guess cause the market has more up years than not, so it usually works out in your favor to just go all in. But frankly I'm not really interested in taking my chances after there have been so many up years recently, and so I was considering moving that 5M yen into the whole world stock fund, say, at 400,000 yen a month over the next year or so.

But then I was just thinking about this Ray Dalio all weather portfolio that seems to help avoid getting wrecked in one year, though it maybe trails the S&P500 in average returns over time.

The portfolio is:
30% Stocks
40% Long term bonds
15% Intermediate term bonds
7.5% Commodities
7.5% Gold
(all of which can be gotten easily enough through ETFs)

So it seems that rather than averaging 5M into stocks over a year (to avoid the chance of starting off on a very negative foot), I could probably toss the 5M into this portfolio right off the bat without losing much sleep. And even though it seems overly weighted towards bonds (which seems to be the criticism of it) as we continued our monthly investing in the whole world stock fund that balance would shift in the direction I like over time.

Still very new to this, so I'm curious if anybody has any feedback on these two options, or if there is another option they might consider. Thanks!

[Petronius]

You are considering very different options here.

1) Invest 5M today in stocks. You are fully exposed to the market risk. It is statistically the best LT option (there is a post on retire japan about that with the corresponding historical analysis). You are not trying to time the market

2) Invest 5M in stocks over x months,which in a way is timing the market. You would do that if you believed that the market average will actually go down over the next x months

3) invest 5M today in the fund you described. Same as 1) but with a lower exposure to equity market risk. It is not better or worse than option 1, it is just a different (lower) risk profile with a different (lower) potential return

4) invest 5M over x months in the fund you described. You would do that if you believed that the average value of the fund will decrease over the x months. That's an even more difficult one to predict than option 2)

Ultimately it is up to you to decide what kind of risk profile you want (100% equity vs the mix of the fund) and if you believe that you crystal ball is accurate enough so that you can time the market.

Option 4 seems the most irrational of the lot to me and I would not consider it.
If you are very stressed over the fact that the equity market could be overvalued and might crash soon then option 1 might keep you awake at night. Even if statistically it is the most reasonable option if you want to go 100% equity, the stress might not be worth it.

Deciding between options 2 and 3 is based on the risk profile you decided for your portfolio, in particular the ratio bond/equity.

I am in a very similar situation. My portfolio is too heavy on bonds but I am also very worried about a market crash. Therefore I am doing option 2 with my lump sum. I am fully aware that I am timing the market, but I suppose that the beginning of my investment career and losses in 2008 have left scars on me.

EDIT: your post made me think again about what I was doing with the lump sum I have. I just invested 100% of it today instead of trying to cost average over a year as I was planning. Thank you for making me review my strategy.

[ricardo]

Totally confused.

You got a “100% mortgage” but have loads of money....

Er.......

[adamu]

frankly I'm not really interested in taking my chances after there have been so many up years recently

Petronius said all the good points, and better than I could.

Just to add that you are also taking your chances by not doing this. There are no safe options, just different risk profiles with different outcomes. Not going all in means fewer losses if the market drops at the cost of fewer gains if it rises.

Also as a follower of the church of JL Collins, I can't help but link to There’s a major market crash coming!!!! and Dr. Lo can’t save you.

[amattie]

Totally confused.

You got a “100% mortgage” but have loads of money....

Er.......

Pretty sure you're not confused (and that we don't have "loads of money").

But if I could tell you a story. When I was in high school my Uncle married the ex-wife of a guy who had hundreds of millions of dollars. Prior to that he had been a Catholic priest. Now you see, if a priest wants to stop being a priest and says to his priest boss, "I don't want to be a priest anymore" the priest bosses take their sweet time giving out the walking papers. But if the same priest goes down to Florida and gets married by a JP and then says to his priest boss, "Guess what, boss? I'm married" he gets his walking papers real quick like. Attempting now to get a bit closer to our topic, when I'm 18 my rich uncle says to me, "Rich people borrow money for everything. They borrow money cause the interest rate on borrowing money is lower than the return they would get from investing their money."

Now you know that I know that you know this -- and I reckon anybody who is reading this knows this. So I guess my question for you or anyone else is why would someone in Japan put say, 10M yen down on a house when they could borrow that 10M yen at around 1% for 35 years and invest their 10M yen for a return of something that over the next 35 years is probably gonna turn out to be something quite a bit more than 1% per year?

[ricardo]

Because “probably...” on a depreciating asset.

Did you really get a 100% mortgage at 1%?

[amattie]

Because “probably...” on a depreciating asset.

Did you really get a 100% mortgage at 1%?

Actually, we didn't. We did flat 35 which was 1.34% for the first 90% and maybe 3% for the other 10% -- we do think about paying that part off but for now are leaning against it. I don't know if normal bank mortgages have a higher rate for the portion beyond 90% or not.

[RetireJapan]

Because “probably...” on a depreciating asset.

Did you really get a 100% mortgage at 1%?

I got a 110% mortgage at 0.5%

(but it's for a fairly low amount)

[RetireJapan]

The portfolio is:
30% Stocks
40% Long term bonds
15% Intermediate term bonds
7.5% Commodities
7.5% Gold
(all of which can be gotten easily enough through ETFs)

Might be worth keeping in mind that bonds have had a bull run all of their own, and could well come down in price alongside stocks...

https://awealthofcommonsense.com/2019/0 ... from-here/

[eyeswideshut]

Why not the standard Bogglehead 60/40 Portfolio? Simpler and maybe a happy middle ground between going all stocks and the quite complex Dalio portfolio. Or simplify your life even more and just buy a Vanguard Balance Fund available on Rakuten which provides a automatically balancing mix of bonds and stocks in one fund.

* I am not one to talk though as my portfolio is a real mixed bag of various funds and stocks *