Preserves wealth relatively well when compared against a concentrated portfolio of a single asset class – The drawdowns are less compared to any single asset class
Different assets act as natural hedges based on multiple financial theories such as Liquidity preference theory, flight to safety, etc.
Sets up the investor for long-term wealth creation
As you may have read in the references, an all-weather portfolio typically consists of 4 asset classes – Stocks, Bonds, Commodities and Gold. While we would like to include some tail hedging or Long volatility instruments, the markets in India are a bit complex and the liquidity of such instruments is sparse. Hence we have focused on the above asset classes. The all-weather portfolio will include highly liquid ETFs that track the 4 assets. The rules of the all-weather portfolio are very simple and are …
| Gold | GOLDBEES.NS | |||
| Silver | SILVERBEES.NS | |||
| Govt 5 Year | GILT5YBEES.NS | |||
| Govt 8-13 Year | LTGILTBEES.NS | |||
| NIFTY500 | MONIFTY500.NS |
As you can see above, we have used Silver instead of commodities as the market in India still does not allow us to track the performance of a basket of commodities via a Physical commodity ETF.
We back-tested the above mix of assets from 2010 through 2023 and the portfolio produced a CAGR of about 9% whereas the NIFTY500 produced a return of 12%. It is important to note that the 12% return is based on higher risk and drawdowns. The all-weather portfolio is a sleep-well-at-night portfolio best suited for retirement accounts and risk-averse investors.
