Earlier this year I launched an "All-Season" ETF Portfolio. The initial launch of the portfolio provided a static allocation to 8 ETFs and was inspired by Ray Dalio of Bridgewater Associates.
I have added two dynamic allocations to the All-Season portfolio spreadsheet. The first is an unleveraged risk-parity asset allocation. The allocations for each ETF are updated daily based on the trailing 20-day volatility of each ETF as calculated using adjusted closing prices. The allocation to each ETF is calculated by taking the inverse of its trailing 20-day volatility and then calculating the percent each ETF contributes to the sum of all the inverse volatilities (for an example of the calculation please visit the spreadsheet). Bottom line: the lower trailing volatility an ETF has relative to the other ETFs in the portfolio, the higher its allocation.
The allocations as of last Friday's close are below. The 20-day volatility is listed along with the static allocation I proposed in January. While the allocations update daily, I do not personally check the allocations daily nor do I endorse checking allocations daily. The spreadsheet and calculations were created to allow for maximum flexibility; hence, the daily updates:
|Name||Symbol||Original Static Allocation||Historic 20-Day Volatility of ETF||Risk Parity Weighting|
|Vanguard Total Stock Market||VTI||18.75%||12.85%||5.11%|
|PowerShares DB Commodity Index Tracking Fund||DBC||7.25%||7.01%||9.38%|
|SPDR Gold Trust||GLD||7.25%||14.23%||4.62%|
|iShares iBoxx $ High Yield Corporate Bond Fund||HYG||6.50%||3.60%||18.27%|
|iShares Emerging Markets USD Bond ETF||EMB||14.50%||4.44%||14.80%|
|iShares Barclays TIPS Bond Fund||TIP||20.75%||4.51%||14.57%|
|iShares Barclays 20+ Year Treasury Bond ETF||TLT||12.50%||12.42%||5.29%|
|iShares Barclays Aggregate Bond Fund||AGG||12.50%||2.35%||27.96%|