Tony Robbins’ “All Weather” Portfolio May Sell Books but Concept is Flawed

Tony Robbins, a motivational speaker extraordinaire, is back at it again.  This time, Mr. Robbins has written a book titled “Money: Master the Game”.  In this book, Mr. Robbins makes the case that the markets are rigged in favor of the wealthy professional money managers and that the little guy can’t compete.  For the record, I think the little guy can compete.

As is his custom, Mr. Robbins interviewed a large number of financially successful individuals from different walks of life and believes that the wisdom that he has gained through others’ experiences now make him qualified to share their secrets for success.

With this knowledge, and with particular insight from Ray Dalio, the founder of Bridgewater Associates, one of the largest hedge funds in the world, Mr. Robbins is promoting an “All Weather” portfolio.  This is a take on the All Weather investment strategy developed by Bridgewater back in the 1970s.

A major tenet of the All Weather strategy is to prepare oneself for any market environment.  Factors that can have a large influence on returns, as defined by Bridgewater and reiterated by Robbins, include inflation, deflation, rising economic growth and declining economic growth.  Moreover, as is often the case, these economic data points are erratic in nature and oftentimes, they are greater or less than forecast, creating additional market volatility.  Yet, with sufficient diversification, the goal is to participate when the market is rising and to minimize losses when the market is falling.

From this base, Mr. Robbins presumably reviewed the asset allocation offered by Bridgewater and using 30 years of historical data, refined and simplified the asset allocation for the little guy.  This newly created “All Weather” portfolio, as defined by Mr. Robbins, is as follows:

40%        Long Term U.S. Bonds
30%        Stocks
15%         Intermediate Term Bonds
7.5%       Gold
7.5%       Commodities

I have so many challenges with this philosophy that I don’t know where to begin.  First, I have never believed that there is a one-size fits all approach to investment management.  This approach does not take into account an individual’s tolerance for risk, their income needs and their time horizon.

Second, interest rates peaked in the early 1980’s and have been in a decline over the next 30 years.  It appears that rates may have bottomed in the spring of 2013 and are now going sideways near historically low levels.  I believe it is only a matter of time before rates will migrate back to the mean, meaning that interest rates will rise, putting pressure on bond prices.  If I am correct, bonds may offer below average returns for an extended period of time, much different than the past 30 years.   So, I would not put a lot of credence on any back testing of fixed income returns that did not go through a complete market cycle of low and higher returns.

Third, Mr. Robbins gives much credit to Ray Dalio and his earlier work in building a well-diversified portfolio.  Yet, Mr. Dalio built his wealth on using leverage and also, utilizing far more asset classes than defined above.  Moreover, Bridgewater Associates has a much higher equity ratio than the one used in Mr. Robbins approach.  So, Mr. Robbins approach is far different than the portfolio often associated with Bridgewater.

I applaud Mr. Robbins in his attempt to educate and motivate his public on the importance of investing and the benefits of diversification.  Yet, I think his “All Weather” portfolio is inappropriate, and may very well result in sub-par returns over the short and intermediate term.  While it is possible, which I doubt, that this portfolio will achieve its stated objective over an extended period of time, few followers of Mr. Robbins will likely steadfastly adhere to the strategy if it fails to deliver acceptable results during the interim.  I also suspect that by then, Mr. Robbins will have either changed his allocation, based on new information of course, or will have embarked on another lecture circuit.

All questions or comments are welcomed.

Chris Kress, CFA®