The all weather portfolio – a safer way to retirement savings

Have you ever heard about the all weather portfolio?

Basically it´s a portfolio created for the general public to “invest” for the long term without having to learn anything about investing. This is a way to create a long term money making machine that will provide financial stability for you and your family in the future.

If you feel that putting in the real effort of learning to become an entrepreneur and investor is too much of a sacrifice this is a perfect way to create a long term plan for your financial freedom.

The book made from the worlds brightest financial minds

In Tony Robbins book “Money: Master the game” that I mentioned in my last post about the financial freedom scale we can get a view into the worlds brightest financial minds. In the book, we can read interviews that Tony made with Billionaires, Hedge fund managers and other giant investors that has decades and decades of experience in the investing field. People like Ray Dalio, Warren Buffet, John C Boggle, Charles Schwab, Marc Faber, Jim Rogers and George Soros to mention a few. This book is created to help the little guy understand why leaving your money with a financial planner is most likely financial suicide and how we all can make a much better job, pretty easy and with a whole lot of less worries in more turbulent financial times.

Is your financial adviser trying to help you or himself?

Most people save some money for the retirement but who are you really putting your money with?

Are your retirement savings growing the way that they should?

I mean, when you read in the news that the stock market is “on fire”, is your portfolio moving in the same way? And when the stock market is going down, is your portfolio maybe getting crushed more than it should be?

I hear this a lot, that people give “free hands” to the person managing their retirement money. We think that they are a lot smarter than us and that when they see the market is starting to go down, they will move the money to more safe assets. Some people even pay extra for that “service”.

But what if they are not smarter with money?

What if they are just sales people, trying to sell you a really bad service that is only good for the person selling it?

The fees

Are you aware of how much you pay in fees to the people that manage your money?

If you ask them they will say something like “Our fees? They are a small price to pay for this service”.

Sound familiar?

Next time you talk to them, ask if they are investing in the same products themselves and if it´s the returns that put food on their table. Most times they don´t and what they make money from is to sell their products to lazy and financially uneducated people. They will charge you the fees if the value of your portfolio goes up and if it goes down. They say that the fees are just a couple of percent but won’t tell you that over a 20 or 30 year period the fees will eat up most of your profits. The difference in end results over time is mind-blowing with just a few percent in fees taken from your portfolio every year.

Look at this chart:

all weather portfolio

As you can see, the fees are eating your retirement fund like a money eating monster. Of course, this is something that the money managers at the banks won´t tell you, this is what they get their huge bonuses from. They will tell you that 3% is not much, but it is. Over longer periods of time the fees really matter. Sometimes money managers will lie and cheat just to keep your money under management.

What does the brightest investors say?

When Tony was interviewing 50 of the world’s most successful investors one of his questions to all of them were something like this: “If you could give nothing to your children after you pass away, but only set of investing principles to follow, what would they be?”

The answers from almost all of them were to invest in cheap passive managed index funds. That is not the correct answer for the financially educated, like those 50 billionaire investors. But it is the correct answer for 99% of the people, because it takes emotions out of the equation. Very few people have it in them to invest without emotions and emotions is what gets us killed in the stock market. With the all weather portfolio, the whole idea is to take emotions out of the equation and let time do the job. The idea is to create a portfolio that works in all markets, with not so sharp turns. When the markets are going up we won´t make the huge returns but instead when the market is going down we don’t make huge losses. And the whole idea is that with monthly investments over a 20-30 year period we will buy at all different price levels and with the average value increase of the stock market over time the value increase of the all weather portfolio will be around 8% / year on average.

The all weather portfolio

All the big guys are saying that low cost passive managed index funds are a perfect ingredient for the all weather portfolio, but that’s just one part, the whole idea is to create a portfolio that will be able to perform in all financial “weathers”.

My friend Jan Bolmeson runs Sweden’s largest economy blog and is a well-known personal finance educator in Sweden. He has created his own All weather portfolio that he calls “rikatillsammans portföljen” or “the rich together portfolio”.

With google page translation to English hopefully it will be ok to read for all non-Swedish readers, here is a link to his page about rikatillsammans portföljen.

Jan divides the portfolio into 4 parts:

  • Inflation 25%
  • Deflation 25%
  • Growth 25%
  • Recession 25%

The all weather portfolio: Inflation

The inflation part should contain of things that usually preform good in inflation.

Things like physical gold and physical silver, commodities and other real hard assets. Gold and silver is a well-known hedge against devaluation of the currencies, but other commodities like oil, trees (wood) and foods also tend to get higher values in terms of currencies in high inflation.

The all weather portfolio: Deflation

In Deflation long-term bonds and obligation funds go up in value and will stabilize the portfolio. In a deflation prices of goods and services goes down so we can buy more with our currencies, cash will therefore also help to stabilize the portfolio in a deflationary period.

The all weather portfolio: Growth

For the growth of the portfolio we add low cost Index funds, blue chip stocks and preferred stocks. Things that move a lot in a booming economy and grow over time.

The all weather portfolio: Recession

In a recession cash in different forms preforms well, so local currency and different other currencies will spread the risk. Short-term bonds is also to prefer.

How to start creating an all weather portfolio

This all might seem overwhelming at first but once you get ahold of it, most of the portfolio can be automated and easy managed.

Do your research and find some passive managed low cost (0.4% or less in fees is what Jan says) index funds and put it on auto purchase every month. Buy some preferred stocks in big stable companies.

Get some physical gold and silver.

Put on auto buy for some fruit and Mahogany trees every month.

Put up a “safe” savings account with the highest returns you can find and put a portion of your cash there. Exchange a portion for some different other main currencies.

With diversification over many different asset classes and different assets some things will go down in value when other things goes up, making the portfolio less volatile.

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