Bridgewater's All Weather Portfolio Vs. Harry Browne's Permanent Portfolio

Sep. 20, 2012 10:09 AM ETAGG, BND, BOND, EMB, GLD, HYG, IAU, JNK, LTPZ, PCY, SPY, STPZ, TIP, TLT, VTI, LQD12 Comments
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Bridgewater's Ray Dalio recently had an interview with CNBC's Maria Bartiromo in which he discussed how average investors should set up their portfolios. What he advocated for average investors is in essence a portfolio that is very similar to Bridgewater's All Weather portfolio. See the key points here.

The All Weather portfolio has been used by many pension funds and other institutional funds. In a pdf document prepared by Pennsylvania Public School Employees' Retirement System, the portfolio has the following allocations:

Based on the above, we use equal weight for each section and derive the following table:

Growth + Growth - Inflation + Inflation - Total Fund
Equities 6.25% 12.50% 18.75% VTSMX
EM Debt Spreads 6.25% 8.33% 14.58% PEBIX
Commodities 6.25% 8.33% 14.58% GLD
Corporate Spreads 6.25% 6.25% VWEHX
Nominal Bonds 12.50% 12.50% 25.00% VBMFX
TIPS 12.50% 8.33% 20.83% VIPSX

Using the above, we constructed a model Bridgewater All Weather Portfolio that uses mostly index funds. Investors can use the following ETFs to substitute for the mutual funds:

Stocks VTSMX (or SPY, VTI) 18.75%
EmergingMktDebt PEBIX (or PCY, EMB) 14.58%
Commodities GLD (or IAU) 14.58%
CorporateSpread VWEHX (or HYG, JNK) 6.25%
NominalBonds VBMFX (or BOND, TLT, LQD, BND, AGG) 25%
InflationProtectedBonds VIPSX (or TIP, LTPZ, STPZ) 20.84%

The back testing started from 7/18/2000.

This portfolio is similar to Harry Browne Permanent Portfolio. In the following, we compare the two portfolios' performance:

Portfolio Performance Comparison (as of 9/18/2012)

Portfolio/Fund Name 1 Week
1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe 10Yr AR 10Yr Sharpe
Bridgewater All Weather Portfolio 0.8% 9.7% 9.4% 175.7% 11.5% 218.3% 8.5% 124.5% 9.5% 146.7%
Harry Browne Permanent Portfolio 0.5% 8.0% 7.2% 101.4% 11.6% 173.5% 8.6% 103.6% 9.1% 111.8%

* Not annualized

** Year

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