Stock Market: THE ALL SEASONS STRATEGY | Scott Reese | Skillshare

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teacher avatar Scott Reese, Engineer & Investor

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Taught by industry leaders & working professionals
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Lessons in This Class

5 Lessons (1h 1m)
    • 1. The All Seasons Strategy

    • 2. Ray Dalio & Strategy Details

    • 3. Proof of Performance

    • 4. Portfolio Creation Tutorial

    • 5. Wrapping Up

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About This Class

This is one of the simplest and yet most ingenious stock market investment strategies out there. The brains behind it is Ray Dalio, the hedge fund manager at Bridgewater Associates. By investing in just five different asset classes in the right proportions, this portfolio strategy has shown to be both incredibly resilient and achieve fantastic performance. This is due to the fact that this strategy is designed to thrive in all four "seasons" that economies and markets go through on a recurring basis. In fact, this strategy is so robust that back in 2008 when the US stock market crashed over 35%, the All Seasons Portfolio was down only 3.5% for the year! Don't believe me? Let me prove it in this course and then show you how to create the portfolio for yourself!

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Scott Reese

Engineer & Investor


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1. The All Seasons Strategy: So I think we can all agree that investing in financial markets has become one of the most convoluted and complicated activities you could get yourself involved in now with index funds and e. T f stocks, futures bonds, forex options and MAWR. No wonder so many people are turned off by this stuff. But when it comes to a long term investing, I have recently come across a strategy that is both so simple and yet so ingenious and in the past has performed exceptionally well. In fact, back in 2008 when the U. S stock market crashed by over 35% this portfolio strategy was only down 3.5% for the year . That's right. In the second worst financial crisis in the history of the United States, this portfolio was only down 3.5% and it regained his losses and only a few months, as opposed to many, many years with the stock market. The All Seasons portfolio strategy, in my opinion, really is the holy grail of long term investing in the stock market. Don't believe me. Watch this course 2. Ray Dalio & Strategy Details: all right, welcome to the first video in this course and just want to start things off by giving you a brief introduction into the true brains behind this portfolio strategy. Because it's not me. The guy's name is Ray Dalio. And if you don't know that is Raise the hedge fund manager at Bridgewater Associates, which is one of the world's largest and most successful hedge funds. When it comes to portfolio allocation and being the market on a consistent basis, Ray really is the master. The reason being is he has identified the four main seasons, if you will, that markets and economies typically go through on a recurring basis, and this portfolio strategy that he came up with ensures that it has assets which typically do well in one or more of these different seasons. And looking at the past, his portfolio strategy has proven to be both very resilient when times were tough and performed exceptionally well when times were great. And the strategy is a little bit contrary to popular opinion because you typically believe that all you need to have a very safe and balanced portfolio is exposure to stock and exposure to bonds The common understanding is thes two assets, or inversely correlated to one out there, meaning When stocks go up, bonds typically go down. When stocks go down, bonds typically go up, and for the most part, there's definitely some truth to that. But if you look at 2008 when the US housing market crashed, that time period saw both stocks and bonds take a nose dive together. If that's all your portfolio consisted of, it would not have saved you by any means. That's because stocks and bonds don't typically do well in all four of these different seasons. And so what are these different seasons, right? What's very simple? We have rising economic growth, falling economic growth, rising inflation or rising prices, and falling inflation or deflation. And that's it. So, looking first at rising economic growth, which assets typically do well in that situation? What we have Stocks, bonds, commodities and gold for falling economic growth. Treasury bonds, typically well as well as inflation protected bonds or tips for rising inflation, rising prices, commodities and gold typically do well, as well as inflation protected bonds, tips and then four falling inflation, falling prices, the things that do well are Treasury bonds as well the stocks. So you should see a common theme. Here we have stocks, bonds or Treasuries commodities and gold and gold is technically a commodity. But it's gonna have its own separate allocation in this portfolio, and the U. S. Bonds or Treasuries are gonna be broken down into long term and intermediate term. So basically, it's five main asset classes that this portfolio strategy consists of and in the right proportions, this what has allowed it to perform so well in the past. And these proportions are as follows. It's gonna be 30% stock, 40% long term Treasuries, 50% intermediate term Treasuries, 7.5% gold, 7.5% commodities explain what all that means and how to do this in the next video and the one after that, so don't worry. But it's a simple as investing in these five different asset classes in the right proportions and the next video, I'm gonna show you proof of my own back testing that I did for the past 13 years. That shows you that the All Seasons portfolio strategy did beat both the market as well as the supposedly very safe and balanced 50 50 portfolio of, you know, 50% stock, 50% bonds. And you know, when you see this data, it's truly gonna blow you away before I continue. I do just want provide a disclaimer saying that you know nothing in life is ever guaranteed right, especially in the stock market. And so past performance is not always indicative of future performance. So my goal here with this course is to one prove to you that this portfolio strategy did indeed performed very well in the past and then to teach you how to build this portfolio for yourself. If that's something you decide you want to do, that's ultimately your choice. Its up to you to weigh the pros and cons of this strategy based on what you've learned in this course and ultimately at the end, say yes or no. I will say that I do have a high degree of confidence in the strategy. It's really how I have my money allocated. And, as I said before, the brains behind it is one of the most successful hedge fund managers in history. So while I can definitely not guarantee you any returns going forward, I will say that my own opinion is that the future prospects of this strategy are quite optimistic. So I hope that by the time you finish this course you feel the same way. So well, that being said, let's dive over to the computer now. 3. Proof of Performance: All right. Welcome to the next video in this course, and in this one, I'm gonna be showing you the back testing that I did using data for the past 13 years, which proves that within this time frame, the all Seasons portfolio strategy did beat both the market as well as these supposedly very safe and balanced 50 50 portfolio. So just to briefly walking through this spreadsheet So you know what's going on and how he did all this. I basically wanted to Yahoo finance and pulled historical data for a couple different e t. ETFs and these e T f there going to be the assets I'm gonna be using to create these various portfolios so that at the end, I can compare their performance for you. So I pulled data for each these assets from May 30th 2007. And if I scroll all the way to the bottom, get to march 13th 2020 So almost 13 years worth of data, it's just as far back as I could go on Yahoo Finance to get historical data for each these different assets. But I still think 13 years is plenty time. Plenty of data to illustrate how well this all seasons portfolio did perform. Um, so starting here with SP y this is A S and P 500 e t f. So this is how you can get your broad U. S stock market exposure in your portfolio. It just tracks the S and P 500. Exactly. So you know, when the S and P 500 goes up by 5% so does the share price of SP Y. If the S and P 500 drops by 10% so does the share price of SP Y just tracks the broad U. S. Stock market. Exactly. Um, however, you can totally use this to get your stock market exposure in your portfolio. I prefer to use a different S and P 500 e t f called V u g Just gonna give you a little bit more bang for your buck a little bit higher return on average, a little bit more risk involved, but it's basically negligible. Um, and I'll get to that in a minute. But s p y is definitely a great choice. Next we have SPT l, which is an E T f. That tracks long term U. S. Treasuries. So that means us Treasuries are just bonds issued by the US government. So you give the U. S. Government money, and every quarter or every year they basically pay you interest on the money you lent them . And then after the bond matures, could be one year, 10 years, 20 years. Whatever it is, you get paid back all the money that you let the government. Um And so typically, when we're talking about bonds issued by the US government, these are deemed as one of the most safe investments you could make because these bonds are backed by the US government, and so far the U. S has never defaulted on its debt. So, um, these are pretty risk free now. That said, there's always a relationship between risk and reward. So if you're taking on very little risk like you would be with us Treasuries, then there's not gonna be a lot of return out of them. So, um, us PTL and SPT i they're both treasury et ETFs. You know, the returns on these are not gonna be amazing, but they're basically used to give you some return, but also counter act to balance out the volatility that you're going to get with the stock market. Right? Stocks are very volatile. Huge upswings, huge down swings. A lot of movement and bonds are typically especially Those issued by the government are very stable. Uh, no smooth growth over time, you know, modest returns. And so they're a great tool. Great asset to use to help counter act some of the volatility in the stock market. And in regards to just bonds in general, the longer the term longer the duration, the higher the return is gonna be. You just think about this logically. If I'm gonna be giving you my money for 20 to 25 years, that's a long time to have your money tied up. So you're gonna wants a higher return on that on that investment, right? So longer term Treasurys, this E t F tracks Treasuries that have maturity dates of 20 to 25 years so that returning to this one's a little higher. Um, and then SPT i tracks intermediate term U. S. Treasuries. So u s bonds that reach maturity in about 7 to 10 years. So about half the time, um then SPT all these longer term Treasurys. So the return on this CTF is gonna be a little lower on average than SPT L. But with shorter term bond maturities, there's gonna be less risk involved in terms of price movement And what not so again, there's gonna be some exposure to SPT I in this portfolio about 15% just to further help counteract some of the volatility in the stock market. But both of these assets just track us Treasuries just with different maturity time horizons going over here, we have g o D, which is just a gold e t f zone just tracks the market value for gold. And over here we have GSG, which is your commodities e t F s O commodities. If you're unfamiliar, they're basically just mawr raw materials. More natural resource type goods that are often used as inputs to create more final products. Eso examples would be grains, oil meet gold as well. Natural gas. Things like that. They may involve a little bit of processing to get them prepared, but typically very raw materials, natural resource kinds of materials that were used as inputs, so GSG will give you broad exposure to the commodities market. And then, lastly, as I mentioned previously, we have the U G, which is ripe. 30 used to get broad U. S. Stock market exposure because view G this e t f tracks companies in the U. S stock market that are growing very quickly so higher return higher growth. But only companies that are very large, very large market caps. And you know, typically, on average, investing in larger, more established companies is give me a little bit safer than investing in smaller companies with less revenue, less market share, mawr vulnerable to competition and things like that. So the A G is still gonna offer pretty reasonably safe investments. But you're gonna be taken a little bit more risk than with SP wise. So there's going a little bit more volatility in the price movements with you G. But there's always that trade up between risk and reward. So you're taking on a little bit more risk and as a result, you'll be getting a little bit higher returns out of you, G. But as I said, the additional volatility in beauty is basically negligible, so you can choose view G just like me or you could go with SP Y or something else. But I think the U. G is a great choice to get yourself broad U. S stock market exposure and good returns. All right, So not moving on over here. I basically created three main groups, two columns each that represent each of the portfolios and going to be comparing. So to begin with, we have, you know, the market portfolio, the 50 50 portfolio and then the All Seasons Portfolio. And as I said another, it's broken up into two columns and its first column is gonna be the portfolio of value. And so you know how this is gonna work. Is the this set up the example here is gonna be Let's say I have $100,000 I want to invest . And you know, if you want to do this for real, you by no means need 100 grand. You can have $10,000.1000 dollars, $100 does not matter. The example is just gonna be 100 k that I want to invest anyway, that I choose. So the market portfolio is just gonna be I'm gonna take the 100 grand and put it all into SP y. I'm gonna buy as many shares as I can And, you know, on May 30th 2007 that's when I make this investment. And then I don't do anything after that, right? Just one big lump sum investment. And so what I've done here is shown you for each trading day thereafter, right? What the value of this portfolio would be for each of those days, Right? You can see, on May 31st it actually dropped a little bit in value, which is a negative 0.104% return from the day previous. So this column is all going to be the daily returns that this portfolio, um, earned from the day previous. That's how this works, right? Um, that's that's that for the market portfolio. It basically is the market, right, because everything is invested into SP y moving on. We have now the 50 50 portfolio. So the way this works is again I have $100,000 to invest on May 30th 2 dozen seven, and you may notice that you know, the 100 grain is is a bit off. There's an extra 13 cents here. Basically, that Matha had you used to do all this is not perfectly precise. So there's gonna be a slight amount of skew, but it's pretty darn close. So basically of $100,000 to start with on May 30th 2007. And the way this one works is half of that 50%. So $50,000 goes into SP Y into the stock market, and then the other $50,000 goes into SP t I, Which is that intermediate term Treasuries E T f. Right. So you got your broad exposure to your safe investments, US Treasuries. And then you've got half the portfolio exposed to a little more risky. Um, investments, the U. S. Stock market. Right, Higher return. Um and so that's how this portfolio is gonna work. And then as time goes on, you can see how this portfolio grows or shrinks throughout time. And the returns are right here as well. And moving on to now the All Seasons Portfolio same concept. May 30th 2007. I have 100 k to invest more or less right, um and so just as a refresher, the way this portfolio was allocated is it's gonna be 30% 30% into the U. G. So it's $30,000. Buy as many shares as I can have you g again, you can use SP y. But I did choose view g to get that higher return. Um, that's that. And then we're gonna have 40% or $40,000 into SP t l long term Treasuries 15% or $15,000 into SPT I Intermediate term Treasuries 7.5% or $7500 into G L D, which is gold and in the last 7.5% or $7500 into GSG, which is our commodities E t f right. Add all that up and there you go. We'll get $100,000 to start with. And just like before, you can see how this portfolio in terms of its value grows and shrinks across time and the returns right next to it. All right, now that you know what's going on there, time to get into the actual results of all this analysis and so I have a table here with some numbers, some metrics, and then have a graph. I'll show you in a minute so you can see this data in two main ways. So I have each the portfolio was listed here and the metrics that we're gonna be looking at to compare them. So, you know, we have average daily return over this 13 year time span. Average monthly return now average annual return is something that a lot of investors and people really care about, right? So let's look at this one first. Well, with the market portfolio with this 13 year time time span, the market portfolio on average achieved about 8.5% return per year, which is pretty good, especially considering at this data right starting at May 30th 2007 encapsulates both the U . S. Housing market crash of 8 4009 as well as the was happening right now, the Corona virus epidemic. So, um, to to still have 8.5% returns on average in this time span is is pretty good. Um, you know, just as in F y I. If you ever want to do some kind of analysis of this sort on your own, it's always good to have data that includes both the bad times and the good times, right, because obviously, if you just have data that only caps like the good times, everything is gonna be doing well. But it's only in the bad times in In, In the case of 10,009 for example. And right now that you see how well this portfolio this All Seasons portfolio really holds up in these troubling times. So that's a market portfolio. Average annual return 8.5% Now the All Seasons Portfolio. 7.1%. It's a little bit less, but still pretty darn good in this 13 year time span, Um, the stock market on average over the entire length of its that we contracts. Data averages about 78% return on average annually. So even though you only have fluid 30% exposure to the stock market, this portfolio still got stock market like returns, which is great, and I'll explain this in a minute. But this number is not entirely accurate either, actually, should be a little bit greater, so I'll get to that in a second, but still very good returns there and then going to the 50 50 portfolio, you know, 5.57% on average annually. Not terrible. But certainly you could do a lot better than that. And you'll see in a second that, um, the all season portfolio is better in every way because offers high return and also less volatility. So getting into that now daily returns there deviation. You know, if you're not a statistic, snored like I am. The bottom line with this statistic is this right? The daily return stand aviation for the market portfolio was 1.3% on average. Um, for the All Seasons portfolio, it was 1/3 of that. And what that means is the All Seasons portfolio was 1/3 less volatile than the market portfolio, right? The market portfolio is the market, right? So it's gonna have huge ups and huge downs, big drops, a lot of movement, and it's gonna get pretty crazy. It sometimes the All Seasons portfolio is going to be 1/3 of that. So yes, so gonna have its ups and downs and whatnot. It's not gonna be impervious to huge down swings in the market, but it's going to be very resilient in those times, right? Even if there's a bit of a dip, it's gonna be various, subtle, very slight. It's still gonna give you a pretty smooth ride the whole way along. And from an investor perspective, that's certainly a huge advantage, right? Obviously, you don't want to endure. At least I don't want to endure times where I'm seeing. My portfolio would drop by 30% and then skyrocket by 50% and doing all this kind of crazy stuff. I prefer to have a very smooth, stable growth curve over time. And that's what this this metric is showing you here and they're going to the 50 50 portfolio. It had stolen a lot lower volatility, a lot smaller, standard deviation than the market right. But it's still greater in the all Seasons portfolio, which means you get less return from the 50 50 portfolio, right, you get less return and more volatility over the 13 year time span, so that doesn't make any sense, right? If you want to be taking in less return, you also wanna be taking on as much risk. There's that's that give and take relationship again so you know if you can go If you can get higher returns and less volatility, there's no reason to go with this strategy. That's just my opinion, though, Um, and so then moving on to, you know, the end of the day. How much money did we finally make with all these different portfolios, we could see here with the market portfolio. In this 13 year time span, it made about $128,000 pretty good with the 50 50 portfolio, not even 100 K only 94,000. Not terrible, but obviously could do better with the All Seasons portfolio. And this is where it gets interesting because with these numbers calculated as is, the All Seasons Portfolio had a smaller average annual return and the market and yet it's still end up making you more money in this 13 year time span by almost $10,000. That's pretty cool. So and, you know, again, this number is not entirely accurate. And I'll explain that in a minute, but still very cool to see how very is very cool to see the fact that this portfolio still beat the market within this time span. All right, so not moving on over to the graph. I wanted to show you guys, um and so what this is depicting is the three portfolios in terms of their value tracked across time, Right? So starting back in May of 2007 going all the way through to March of 2020 right, they'll start at about $100,000 you could just see how the values of the portfolios fluctuated across time. So let's first look at the most current data, right? If you're watching this course recently after I published it, then you'll know that the corner virus has been really causing markets to take a massive drop on and whatnot. So, on this deadly a good case study to look at the blue curve is going to be the market portfolio. Right? So it is the market. The gray here is the all Seasons portfolio, and the orange is the 50 50 portfolio. So you can see here with this krone virus epidemic happening, the stock market has taken a massive massive hit almost 30% at one point, right? Huge downturn, huge crash. The All Seasons portfolio, yes, definitely took a bit of a hit here as Well, no portfolio strategies impervious to major downturns in the market. But you can see it was much, much, much less severe, much less severe. And this is why, um, at the end of this 13 year time span, the market was actually second place. And this is why the all Seasons portfolio actually finished on top. Right? Um, because even though for certain period of time, the market may really take off because it's so volatile. At some point, it's gonna have a huge, huge crash, a huge downturn, Right? These kinds of black swan events occur, you know, every 10 years or so, so not too often, but they do happen. And when they dio, it's important to have a portfolio that is resilient to these kinds of huge downturns. And this all seasons portfolio certainly is. And you could see with the 50 50 portfolio. Um, you know, you were underperforming the other two portfolios almost the entire time. Um And then when the corner virus hit another big crash with this portfolio as well, So, um, you know, definitely was Is from what I can see here using this data not a great strategy that I recommend using, but it's still important. Toe demonstrate this. Um So now going back when I want to show you next is how well this portfolio the all Seasons portfolio held up during the 2008 and 2009 housing market crash. And so you can see here with the blue again. This is the market, right? Um, start with 100 k And by March of 2009 this portfolio was down to $46,000. That's over a 50% drop in value. That's really gotta hurt. And it took all the way until about here, which is March of 2012 just to get back to where you started, right? So the market started going down right around here, which is November 2007 and it did not come back toe where you broke even until March of 2012. That's over four years just to get back to where you started. That's a long time looking at the 50 50 portfolio, right? When the market crashed in 2008. Yeah, your definite took a hit wasn't as severe as the market itself, because you only had 50% exposure to the stock market, but still took a pretty big hit and did not come back to just breaking even until March of 2010. So it started going south right around here, which is June 2008 and March 2010 was when you broke even again. So it's almost who years just to get back to where you started. And then you could start making money on top of that with the All Seasons portfolio and Gray here again, you know, as the market was crashing, this portfolio was actually making money for a short period time. But incredible. You're up total $114,000 while the market was down over $7000. That's pretty credible. And, you know, at some point you know what? This huge crash this all Seasons portfolio did take a bit of a hit, right? Basically came down to $95,000 or so, which is below where you started. You can see how short lived this this downturn lasted basically, so from, um, I'll call this October 2008 to December 2008. The All Seasons portfolio was below your starting point so basically two months, That's it as a post over four years with the stock market or two years with the 50 50 portfolio, right? And you had a little bit down tick right here, but very short lived. And after that, it rebounded very quickly and started taking off and making a lot of money truly astounding . Given that this crash was the second worst in the history of the United States, I mean, you might hear again. And now you also see that the All Seasons portfolio all the way until about here was outperforming in terms of the portfolio value. It was outperforming both the market as well as the 50 50 portfolio. And this was at this 500.2016 November 2016. So for about about nine years, the All Seasons portfolio was outperforming the market and the 50 50 portfolio. And only at that time did the market actually finally overtake the All Seasons portfolio and continue a bit higher. But you can see here there's a lot of chop and big downturns and huge balances and movements, and especially now with the corner virus, massive, massive drop. So if this was your portfolio. Yeah, you'd still be technically making money over the long run, but to be a lot scarier along the way, right? And actually, as of right now, you know, coming back around here, you would not be up by that much because of this huge, huge crash, the All Seasons portfolio. Like I said before, you know, it does have its ups and downs of what not? And even with this huge crash back in 2018 the All Seasons Portfolio definite took a dip. But it was much more gradual, much less severe. Right? You were up before this happened. Your portfolio was worth $204,000 and at the bottom it fell to about $187,000. Not that much money, right? Duffy would have hurt. But it's nothing crazy with the market. You're up to $240,000 it fell all the way down to $195,000. Big dip. And with the corner virus epidemic, it's been way more up 285,000 old, way down to almost $200,000. A huge hit, right? So bottom line take away is you know, if you're looking for a investment strategy that will hopefully smooth out the ride along the way over the long term will not be as volatile and crazy as the stock market and still provide good returns. This is something you should definitely want to look into. Um, And so now, going into this percentage right here, this average annual return, um, as I mentioned, this is not entirely accurate, right? The reason being is, you know, if you were to read the book Money Master The Game by Tony Robbins, which is how I discovered all this information. No, he actually 20. Robbins actually interviewed Ray Dalio and Tony's team professionally back tested this portfolio for not just 13 years, but for 75 years. And, you know, I can't speak to the different assets or funds or, um, e t f they were using to actually back test this, uh, this portfolio, but they at the end of their experiment, they found that over the 75 year period, the average annual return of this portfolio was just under 10% per year, which is incredible. Um, and moreover, they're back testing also involved re balancing the portfolio on a consistent basis. And what I mean by that is you know, at some point when you first create your portfolio, you've got 30% of your money allocated here 40% of their 10% here. Right? As time goes on, those allocations are going to start moving and get out of whack, right, Because depending on how fast the stock market grows and how fast gold grows and how fast bonds grow, Um, you know, these numbers are gonna change. So maybe after one year that 30% allocation to the stock market actually turn into 35%. Right? Because maybe the stock market just had a really great year. And maybe, conversely, with bonds, not such a great year. So you're 40% initial investment into long term Treasurys. Maybe that moved down to 35%. Right? And so what you want to do is, you know, at least once a year or once 1/4 or once a month is rebounds your portfolio. So, for example, if your stock exposure, um, is 35% when it should be 30 you may want to sell some of your stake in the stock market to bring your allocation back down to 30. Likewise, if your bond exposure is below your target, you may want to put more money into those assets to boost and bring your allocation back up to your target. Right? And so I did not include re balancing in this analysis. It's actually pretty difficult to do so with just a spreadsheet data. But I would expect that if I had done the re balancing and had actually actually had access to 75 years worth of data, this number would actually be higher. I can't guarantee a 10% return. That's pretty crazy, but, you know, certainly 7%. Even with these numbers, as is 7.1% average annual turn is pretty darn good. But as I said, with re balancing and using a longer term time horizon, I would imagine this number actually being higher. So, um, at the end of day, I think I really do think this strategy is like I said, the Holy grail of long term investing. Um, if you have watched my course that I made called how to safely invest in the stock market, that time my portfolio was allocated as 90% stock, 10% bonds, which certainly is not incorrect. Way to do things. You know, I was investing in very broad market E T f s and what not? Um, And so, you know, even with 100% exposure to the stock market, right, Which is this blue line over the long term? Yeah. You definitely still get great returns, right? It's just gonna have a lot more dips and a lot. It's gonna be a lot scarier of a ride along the way on DSO If you know if you're okay with that, then maybe you want to go with full stock market exposure in the long term. But if you're like me, you're and you're not as, um you live it more risk averse, then I know I was looking for a way to try and smooth out my growth curve over time. Which is why, when I came across this strategy, I immediately jumped into it and perform this this analysis and it's back testing to prove it to myself and now proving it to you. So, um, with all that being said, thank you for watching this video I know is a bit of a long one. But I hope you do see how advantageous this portfolio strategy is. And in the next video, I'm gonna be shown you how to actually create it for yourself. If that's something you decide you want to do. Um, but again, just re clarify. Um, you know, past performance is not always indicative of future performance. So even though the data provided here looks very promising, no one truly knows what's gonna happen in the future. Right? So I am very confident and optimistic about the strategy going forward, but obviously cannot guarantee anything going into the future. But, um, a lot being said when you're ready to go the next video. I'll see you in that one. Thanks. 4. Portfolio Creation Tutorial: all right, thanks for joining me here in this next video. And now that you have seen how the All Seasons Portfolio is made up in terms of its different asset classes and also how it performs through a long period of time, especially compared to the market as well as the supposedly very safe and well balanced 50 50 portfolio this video to be shown you Now if you have money that you want to start investing with, I'm going walking you through how to actually create this portfolio for yourself and also how to maintain it. And I'll be doing so through Robin Hood. As you can see here, although a Robin Hood account is by no means required, I simply like to use it for to toil purposes because the U Wise is very simple and easy to walk people through. And I also do recommend it as well because they don't charge any commissions or fees when you want to trade. So buying and selling stocks or E. T. F s or options whatever. It's all completely free, and most broker platforms are offering low or no commissions now, so the options are bit mawr diverse but Robin Hood is definitely a great place to start. Um, so the set up here for the example I'm gonna walking you through is let's say you have $5000 you want to get started investing with and just to note, you know, $5000 you don't even need to have that much. If you only have $1000 or just a few $100 you can definitely still get started making this portfolio for yourself. And if you are someone who doesn't have a lot of money to start with, then I would actually fully recommend Robin Hood because they are unrolling this new feature pretty soon here where you can buy fractional shares. So, for example, if you don't have enough money to buy one full share of dangler growth, CTF view G than Robin Hood very soon would like to buy a small piece of it. Maybe you know 0.27 shares of B, U G. If that's all the money, you have to buy that much of that specific asset, right? And on top of that, you know, if you also want to use Robin Hood, having fractional shares will allow you to allocate your portfolio to exactly hit your allocation targets. So, you know, 30% of your portfolio needs to go into stock, and using fractional shares will allow you to exactly hit that 30% target, which is great. But the example I'm gonna be walking you through is going to assume this feature does not exist yet because, you know, not every broker platform offers this feature. Even if Robin Hood it's coming soon as I'm interpreting this advertisement right here. Um, but even even still, you'll see that without using fractional shares, you'll still be ableto get very, very close to your allocation targets. You know, you might end up with 31 or 29% stock exposure instead of 30% you know, 39.25% in, um, long term Treasurys instead of the 40% target. But when you get down to it, and especially as time goes on, the subtle differences between your targets and your actual allocations will not matter, right, as long as you keep them close to the targets and will make any difference. So, um, now to fully kick off the example here again, $5000 to start with. How do we create this portfolio now? Well, we're gonna start with Bu GI. Um, and as I explained in the last video, this is what I'm gonna be using for my stock exposure. You don't have to use view G and use something else if you want. And one more thing to note is I'm gonna be using E t efs For all of these assets. I prefer to use ET efs instead of index funds or mutual funds. Simply because E. T. S typically offer the lowest expense ratio, meaning the company's or fund managers that are running these funds are going to charge you the least amount for, um, you know, overhead and maintenance of these funds and as well as the fact that E. T s can be traded at any time while the markets open right some Monday through Friday. You can go in and buy and sell shares E T. Efs. Whenever you want with index funds or mutual funds, you have to wait till the end of the day to pull your money out or put money in. And I just prefer to have a little bit mawr latitude of being able to buy and sell whenever I I want. If I need money, for example, or I want to put money in at a certain point in time if the market looks really advantageous given the current set up, you know I can go in and buy and sell shares of each has right then and there instead of having to wait till the end of the day, but not required either. You can use ET EFS index funds, whatever you want. What matters is theme money. You're putting the things you're putting your money into represent stock, long term Treasurys, gold commodities, etcetera, right. The ticker names themselves don't matter so much. But anyways, for now, finally getting into the example here. So for a 30% exposure to stock and $5000 to start with gonna put my calculator here, all you have to do is take your initial investment of $5000 and multiply it by 0.3. There you go. 30% of $5000 is 1500 bucks. So this is what we have to spend to buy shares of view G. And you can see here that current training prices 1 60 to 66 so clearly weakened by more than one share. And obviously we will so to calculate how many shares were gonna buy, We just take our our money that we can spend on it and divide it by the share price. 1 62 0.66 There you go. So we could by 9.22 shares of the U. G. And again if you had the fractional shares feature, you could buy exactly 9.22 shares, and that would give you exactly 30% exposure to the stock market, which is great, but, you know, certainly not required. If your broker doesn't have that future. No worries. So what I'm gonna do is just round down, right? I'm gonna assume that we're only gonna by nine shares of View G and you'll see um, later on this video, that and the day we're gonna get very, very close to our allocation target. So nine shares of you G he's gonna come out to, and we just take nine and multiply it by the share price won 62.66 So all in this transaction is going to cost us $1463.94 right? So a little bit under what we wanted to spend on it. But that's OK. And one thing to note, you know, this is gonna be the first time you're gonna be getting involved with stock market and what not, um, buying and selling buying and selling shares is not quite as simple as just placing an order. Um, what you're gonna find is when you want to buy ourselves something, there's gonna be two prices you're gonna look at. There's the bid and the ask the bid price represents at that moment in time, the highest someone is willing to pay for that asset. The asking price at that point in time is going to be the lowest. Someone in the market is willing to sell that asset for right. And those numbers are obviously could be changing every second because there's obviously a lot of people buying and selling in the market. Right? So what you want to do is this I would recommend, instead of placing just a simple market order, you know, instead of just saying I want to buy nine shares and get me in at whatever price you can get the Internet. I would place what's called a limit order, right? And you know what? The pain that depending on the broker platform of your choosing the bid and ask Price what might be displayed somewhere. But just look at those two prices and what you want to do is typically place a limit saying I'm willing to you know, in this case, you want to buy view G say, you know, I want Oh, my set your limit price to something in between the bid and the ask. So, for example, typically what you see here in Robin Hood is the average between the bid and the ask. So the bid price for View G was 1 62 and 50 cents, and the asking price was $162.80. The average between the two is gonna be about 1 60 to 66. Right. And that's the limit that I would probably place, um, in the market. And so what this means is, you know, I wanna placing a limit order for nine shares of beauty. My limit is 1 60 to 66. What that means is I do not want to pay more than this amount for this purchase, right? So, as you know, if there is that there are no sellers in the market right now willing to come down from the asking price of 1 60 to 80. As I said then this border is not going to go through right. But typically, if you set a limit price right in the middle of the bid and the ask, chances are there's gonna be a seller out there in the market somewhere that's gonna be willing to come down from the ask a little bit and meet you in between, right? So you can set whatever price you want Here, you can go. You can set it right to the bid. If you wanted to, um, toe pay as little as you possibly can. But the lower you go, the less likely that water is going to get filled because the mawr, some sellers gonna have to come down in price to meet you there. So just setting it right in middle and Robin Hood usually does that by default. I think most brokers do actually so um, but this this will guarantee that you know exactly what you're gonna be paying for this transaction and no more. You could also be paying less than this. The sellers want to come down below your limit. Then the order will still go through, and you'll be paying less than you thought. So, however, ends up happening. Whatever you end up paying for, whenever you see a notification that your order got filled and went through, take a look at what the order actually got filled at. And then how many of them depending how many shares you bought? Multiply the price by those numbers shares to get your true cost of that transaction. Right. Um, so I'm just gonna assume that this border went through it. The exact limit I placed right. 162.66 times nine shares. This is our total cost for the transaction. So 14 63 94. I'm just going along that right here 14 63 94. That's right. There we go. So this was our purchase. Four V. U G. And I mean a total a total it up at the end and then show you all the percentages in terms of their allocations, and you'll see that we're gonna end up very close to our targets. So next up is Spoto, which is our long term treasury E t f. And so we can see here that, you know, it's currently trading at $44.16 and our allocation for SPT l is gonna be 40%. So we take $5000 multiply that by 0.4 to get 40% of that. So $2000 is what we have to spend on SPT l. So we divide that by the share price 44.16 and that means weakened by 45.29 shares of SPT. Oh, I'm going around down to 45. So 45 shares times a share price of 44 0.16 We're gonna spend $1987.20 on this transaction . Right again, it's gonna depend a bit on your limit and what not and ultimately, what your order goes through at. But I'm just gonna assume that it got filled at 44 16. So total purchase price here is 1987 20. So, in 1987 in 20 cents. Now we're going to S p T I, which is our intermediate term treasury, E T f. Um, So calculator again. $5000 for SPT I were allocating 15%. So we take 5000 multiply it by 0.15 and we get $750. Divide that by the share price 32.41 we're gonna by rounding down 23 shares of S P T. I. So 23 shares times 32.41 $745.43 is what we're gonna pay for this transaction. So logged that it's gonna be 7 45.43 Almost there. Now we're gonna do G l d. All right, so there you go. Get the calculator back. So, for gold, we're gonna allocate 7.5% of our money for our allocation and gold. So 5000 times 0.75 and you get $375 that we can use to buy shares a gld. We'll divide that by the share price. 1 44 60 and we get 2.59 shares. So since we have two point almost 2.6, I'm going to round up to three shares. And you know this is going to be a bit of a balancing act or almost a bit of an art form, because by rounding up, we're now spending more than what we thought were going to spend on on g o d right. But we've also spent less than we thought were going to have to on some of the other assets . So hopefully everything's gonna balance out so that we can spend around exactly $5000. But you may have to spend a little bit more than 5000 or maybe a little bit less. But obviously, if you have exactly five grand to invest and nothing more than you might want around down or still round up and see what happens at the end, right, Um, and then if you actually end up needing more than $5000 then you might want to come back and round down or something like that. So again, it's a bit of a balancing act. Might take a couple, uh, trials to get everything just right depending on how much money you have to invest. But it's not that difficult is the bottom line here, So I'm gonna run up to three shares. So three shares, uh, times 1 44.64 33 and 80 cents. Basically So $433.80 is what we're spending on Gld. And finally we have GSG, which is our commodities e t f Um So when the one last time $5000 we're gonna allocate 7.5% of our portfolio to GSG so again will supply 5000 by 0.75 $335 again, divide that by the share price of $11.15. And I'm going to also round up to 34 shares, right? Typically, when you're above 0.5, you went around up once below 0.5 year round down, but again might have to change that. That rule depend on how much money you actually end up named t invest at the end of the day . So I'm gonna round up to 34 shares 34 times a share price of 11 15. So we're going to spend $379.10 on this. So, uh, 3 79 10 Right? And there you go. So now I'm gonna add all this up so we can see what our final cost of all this is gonna be so. 14. 63 0.94 plus 1987.2 plus 7 45 point for three. Plus for 33.8 plus 379.1. And so there you go. Our grand total costs for getting started with creating this all Seasons portfolio is gonna cost us 5000 and $9.47. So, you know, if you can't find an extra $9.47 laying around then no. With gov, for example, I rounded up to three shares. Maybe you got around down to two shares or, you know, I also running up to 34 shares with GSG. Round that down to 33 right? And get yourself under 5000. But you can still see that even without using fractional shares, we got very, very close to what we wanted to invest. $5000 when you write that down. Um, 5009. 47. Right. And now let me do is I'm gonna calculate the percentages of you know, what we have in our portfolio now. So very simple to calculate that we just take our current portfolio value of 5009 force. Excuse me. First we take the amount we have invested in View G 14 63 point 94 and we divide that now by our current portfolio value of 5009. 47 and we get basically 29.22%. 29.22% of our portfolio is allocated to the stock market. Our target was 30%. And as you can see, we got very, very close. Very close. Now let's go to SP TL. So 1987 point to divide that by 5009 47 and we get 39.67% right? 39 point 67%. Our target was 40 again Very, very close There. Next up, we've got s p t I so 7 45 0.43 divided by 5009. 47. 14.88% 14.8%. Our target was 15 again. Very, very close, right? I hope you can see this is common theme, right? For Gld for 33. 80 by that by 5009 47 on this time we get a little bit higher than our target. We get 8.66%. So 8.66% Our target was 7.5. So this is a little bit high, but, you know, being 1.16% office still very close. And that's totally fine. And lastly, GSG Ah, so that's going to 3 79.1 divided by 5009. 47. And there you go, 7.57%. 7.57%. Our goal There was 7.5. So we got extremely close with, um, our GSG allocation. And there you go. Right. At this point, you have created your all Seasons portfolio with allocations that are extremely close to your targets. And you only had to spend next year $9 than you thought you would have to to create this portfolio. Very simple. Right? Um, and so before about this video up the last thing I want talk about is now, what should you do? Going forward right now, The best way to really grow the pot, so to speak, in terms of increasing your portfolio value is to consistently put money into it right every time you get a paycheck, so every two weeks, once a month, whatever it is, put money into your portfolio so your value is gonna grow because the value of your assets were gonna grow. And also, it's gonna go because you're putting more money into it, right? If you had a 10% return this year, you know, 10% of $5000 is 500 bucks least amount of money. But that's over a one year time horizon, right? But if you had $500,000 at some point in your portfolio, then a 10% return and that is $50,000 right? That's a full time salary right there. So obviously the more money you have in your portfolio, the more money you're going to make with it. And even for pretty average returns, you know, five percent or less with the $500,000 portfolio value that's still gonna come out to, you know, tens of thousands of dollars every year. Right? So what should you do when you have more money coming in? That you now want to invest in his portfolio, right? What? You're gonna walk yourself through the exact same steps as before, right? Let's say you have another $1000 at some point that you want to put into your portfolio, do the same steps, right? 30% of that money has to go into the U. G. So that 1000 multiply it by 10000.3 over the whatever the outcome is right, that'll be $300. Buy shares of three buy shares of you G With that 300 bucks that you have same thing with SPT l 40%. That goes into Spoto 15% into S P T I Z. It's the exact same procedure right now. One thing to note, though, is you know, if you're not using fractional shares and Robin Hood will have that stuff you're using fractional shares, this will be much, much easier, But even still without it, what you want to be doing is, you know, with the rounding that you're gonna have to dio it's gonna have toe change over the course of time. And what I mean by that is, you know, for example, with g o. D. Right now we're 1.16% over. Our target writes the next time you have money coming in, right? Um, instead of rounding up if you know, for example, if you did your calculations and it came out to be that you had to buy, you know, 2.6 shares of Gld. Well, because you already have more money invested in Gld than you want to. At that point, you should round down to two shares, right? And same thing, like with view G. You're now under your target. So if, for example, after doing the math you were supposed to buy, you know 3.25 shares of you G instead of rounding down this time round up, right, and that will boost your current allocation percentage to get closer to your target, right? And just keep doing that right. Whatever your allocations, Curly are, and a lot of bookish platforms will simply tell you that in percentages all the math or to calculate it for you. Whatever the allocation is if it's under the next time you want put money in round up if you are. If your allocation is over your target the next time you wanna put money in after doing the math round down, right and just keep doing that and what you'll find is over time, these allocations are going to fluctuate, obviously, but they're going to stay very, very close. They're gonna fluctuate right around those targets. Those target allocations. And as long as your portfolio maintains an allocation set up that's very close to the ideal targets. You know, some subtle differences are not gonna make any difference in your performance. They really want. So, um, with all that being said, that's the and this video here, Um, I hope it was very informative for you. And in the next video coming up. I'm just going to wrapping something's up. So when you're ready to move on, I'll see you in the next one. Thanks 5. Wrapping Up: All right. So I'll let you have finished this course. You know how the knowledge to go and actually build this portfolio for yourself. That's something you decided you want to dio again. I cannot guarantee you any returns going forward because no one truly knows what the future actually holds. But I hope that by now you are just as confident as I am about this portfolio strategy based on how well it's performing in the past and regards the course project. It's quite simple. I want you to actually build this portfolio whether you want to use real money to get started with or just pretend money if you just want experiment on. In that case, you can do exactly what I did in this course Poulsen historical data from Yahoo Finance into a spreadsheet and basically create a pretend portfolio. And you could just update it every day to see how this portfolio performs across time. And then when you get comfortable with it and you decide you want to put real money on the line and you can follow the simple steps of just signing up with a brokerage platform that happened already was playing options out there. There's Robin Hood, Vanguard, TD Ameritrade. Charles Schwab. You trade plenty more. They're all basically the same. So open an account with one of the having already that your bank account information linked up, gets the money transferred over and then just follow the steps in this course to create this portfolio for yourself and maintain it going forward. And so with all that being said, thank you again for watching this course. If this is the first course of mine that you are watching, I really do appreciate it. Um, just so you know who I am. My name is Scott Reese. I'm a software developer in the financial services industry. So I do have a passion for softer engineering, obviously, but also for investing and personal growth. So all my courses thus far and the course is going, I have going forward are gonna be about three main categories. Material like this. So about investing in the stock market, options trading real estate eventually courses on software development, technical interviewing, computer technology, that kind of thing on, and then personal growth courses. You know how to actualize your full potential, expand your potential set goals and achieve them, etcetera, etcetera. Right. So I highly recommend you check out some of the courses Already have one skill? Sure. I think I get a lot of value out of them. I also do Try publish one new course every two weeks. So please do follow me on skill share because I do believe my followers get notified every time I publish in the course and you don't wanna miss out on that s Oh, yeah. With all that being said again, thank you so much for watching this course. Do appreciate any feedback do you have? And I'll see you in the next one. Happy investing.