
Portfolio construction is an unquestionably important aspect of portfolio management.
At FMT, we do not utilize or promote any “model” portfolios, but we do think long and hard about portfolio construction in a way that ensures we can weather the inevitable storms that come our way.
As Charlie Munger quipped about Modern Portfolio Theory (MPT) or portfolio models, “Something not worth doing isn’t worth doing well.” That’s how we feel about “model” portfolios that are supposed to be “set it” and “forget it.”
For example, take Ray Dalio’s All-Weather model portfolio, which was designed to perform well in any economic environment and was backtested using data going back to 1925.
In his book “Money: Master the Game,” Tony Robbins wrote about the All-Weather Portfolio, where he interviewed Ray Dalio about the portfolio, and they put together an All-Weather Portfolio that anyone in the world can easily mimic.

The weightings in this portfolio are as follows:
- 30.00% US Total Stock Market (VTI)
- 40.00% Long-Term Treasuries (TLT)
- 15.00% Intermediate-Term Treasuries (VGIT)
- 7.50% Commodities (DBC/GSG) • 7.50% Gold (IAU)
However, in 2022, this “ultra-conservative” All-Weather Portfolio crashed nearly 20% and had its worst year on record. This was not supposed to be in the cards for a portfolio that had been carefully backtested over decades and designed to perform well in various market conditions. It was supposed to offer decent returns with very little volatility (risk).
Unfortunately, with the advent of 2022, neither has turned out to be prophetic for the “conservative” investor.
The news doesn’t get much better for the Ray Dalio “All-Weather” portfolio going forward. The US Total Stock Market Index, the VTI, is historically overvalued today by any measure, and it is unlikely to provide much, if any, upside for the “All-Weather” portfolio over the next few years. Meanwhile, long-term Treasuries have entered a new paradigm of higher interest rates, and last year’s losses will likely not be made up for years or even a couple of decades, especially when measured against inflation.
When I initially saw the “model” while reading the book, frankly, I nearly choked, and I wouldn’t have recommended this “All-Weather Portfolio” to my worst enemy. As a fiduciary, I couldn’t recommend it anyway, based on the research I’ve done. The 55% portfolio weighting in intermediate and long-term Treasuries really jumped out at me.
After a nearly 40-year-long bull market in long-term bonds, I thought that this “All-Weather” model, as constructed, was dangerous at best and possibly ruinous at worst (and still might be). Yet, it is marketed as “safe” with very little “risk.”
The huge tell-tales that this model was at risk over the last few years are numerous (Dow-to-Gold ratio, historical valuations, new geopolitical shifts, etc.), but the following chart is the most telling.

With commodity prices basing over the last few years at 50-year low relative valuations compared to the stock market (and interest rates), it was only a matter of time before there was a seismic shift in underlying trends.
And to think, the commodity bull market hasn’t even really started yet. If there is one area that would be more optimal for being overweight, it certainly isn’t long-term bonds or the general stock market (VTI).
At the end of the day, there is simply no substitute for hard work (research) and thinking for long-term safety.