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Weekend reading: Pointless jobs, or missing the point? post image

What caught my eye this week.

You can passionately make the case for financial independence being hugely positive versus retiring early being a bit of wild goose chase – and I have. But if some unfortunate office drone has just been sent to the seldom-visited filing cabinets in the strange rooms behind security to spend a week hunting for all the paper-based invoices from O’Brien and Sons from the 1970s, well, good luck getting them to vote for the job.

Of course many jobs are rubbish. But from the earliest days of this blog I’ve argued they used to be even worse. All repetitive manual paperwork and calling Mr Blimp ‘Sir’ as he dressed you down for wearing the wrong kind of tie again.

Not to mention the love of coal mining and sweating in an iron foundry that middle-aged middle-class columnists love to champion – but would be dead doing themselves in a fortnight.

Somebody’s got to do it

There’s a big difference between a job being unsatisfying and the actual work being pointless or futile.

Yet a decent chunk of the Retire Early and Forever cohort of the FIRE scene1 believe that modern jobs are literally pointless – even to the organisation they’re working for.

They cite arcane tasks steeped in ritual but bereft of meaning, such as preparing a presentation for a senior manager that they suspect will never be read. And to be fair most of us can agree with them about all those pointless meetings.

Overall though, I believe most of these jobs have a function – at least in the private sector.

Sure there might be a bit of padded headcount here or some not-yet-optimised away employees there.

But even badly-run companies won’t survive for long carrying too much deadweight that’s doing nothing to keep the operation going.

Strike through

I saw this when I was managing my own small start-up. There were never enough hands for all the work to be done – much of it indeed annoying or trivial-seeming.

Some of those hired hands were a bit useless, I reluctantly concede. But not what we had them doing.

At least not from the myopic perspective of our company. Which is to say: nobody was curing cancer.

That is clearly a big issue for a lot of people. If pushed, they can see their work has a function. But they don’t see the point for humanity, I suppose.

The other issue is the typical cog doesn’t have a good view of the machine. Your useless role writing up user manuals that you believe nobody reads might be a lifesaver one day when your company’s minor malfunctioning gadget brings a giant operation to a halt. Not to mention it’s hard to sell stuff without operating instructions, even if most people ignore them. So they’re a function of sales and marketing.

Or just ask whoever presumably has done something wrong at Crowdstrike. I don’t know what exactly crippled half the world IT system’s following its software update yesterday. But I’ll bet it’s a trivial-seeming thing gone wrong.

Not some exciting security function that was dreamed up by the company’s brain trust and lovingly laboured-on like Michelangelo working over a ceiling. Rather, the version control or installation code or similar.

Boring stuff that gets no acclaim, and that nobody rushes out of university to get started on.

But which is quietly absolutely essential.

It’s a wonderful life

For more on all this, you can click over to Byrne Hobart’s devotional paean to the complexity of modern workplaces on Capital Gains this week.

In taking down a Bible of the Modern Work is Rubbish movement – the late David Graeber’s Bullshit Jobs – Hobart writes:

Graeber estimates that roughly half of all work fits his fake job categorization, which implies that the economy’s productive capacity is roughly twice the output we actually get. It would be a pretty big deal if this were true: we could have a lot more leisure, and a lot more stuff.

And there are people motivated to make this happen! The strongest single argument against Graeber’s book is: did anyone at Bain or McKinsey read it? What about KKR and Blackstone?

Did any owner of any business of any size read it and say: “What a sec! That’s right! Most jobs really are fake jobs designed to make rich people feel good about themselves. But what makes me feel good about myself is having more money, so I’m going to start firing people and keeping the money.”

The closest you can get is Elon Musk at Twitter, which did reveal that the service could keep running, and ship new features, with a lower headcount. But that happened at a company that was notoriously inefficient, for years, and one where it’s widely-agreed that they unnecessarily blew their lead in short-form many-to-many communications, and took too long to get into messaging.

If there’s one large-scale example of the thesis playing out, and the thesis holds that it’s describing a ubiquitous phenomenon, something doesn’t add up.

Hobart rightly concedes that many jobs aren’t fun to do and also that many people are in the wrong jobs for them, personally.

But as he concludes:

The world is full of mysterious economic phenomena. You should expect it to be!

A world where you can consider a random career or business for a few seconds and instantly identify a way to double its efficiency is a much weirder world than one where those mysteries tend to have satisfying answers.

It’s also a world whose sizable and growing aggregate wealth is a big mystery: if we’re wasting more and more of our time, shouldn’t we be getting poorer?

Go give it a read and see what you think.

Honestly, with all the dire warnings about the typical worker’s imminent replaceability by an AI drone, it’d be nice to think we were just giving each other things to do out of habit, ego, stupidity, or an obliviousness to the bottom line.

In an AI-powered world we could then continue to pay ourselves to – metaphorically – dig holes on a Monday only fill them up again by Friday.

But real-world capitalism is far too ruthless for that.

Have a great weekend.

[continue reading…]

  1. Financial Independence Retire Early. []
An small chart of how financial assets are distributed across different wealth deciles

The main reason people try to keep up with the Joneses are the status games we all play.

Humans are social creatures. And throughout our evolutionary history, it made sense to be intensely concerned about our ranking within the tribe.

Status could mean the difference between eating, having children, and meeting – or meting out – violence.

Not to mention whether you get a backstage VIP pass for Glastonbury or you’re pitching your tent by the loos.

Status games are everywhere. Even when people have few expensive material possessions, you’ll notice they’ll find a way to get a status boost.

Think of holier-than-though students who flirt with communism. Impoverished kids trying to get an edge with a pair of rare Nikes. Or frugal savers who position themselves as above “all that consumerist crap” and in doing so aim to turn their practical choices into moral virtue.

As you do

Another – better – reason to twitch the curtains to see what our peers are up to is imitative learning.

We learn to fit in and get on by copying each other. It’s a social reality.

Before you say you’re “above all that crap” too, spend an hour in a kindergarten. See how impressed you are with the kid who ignores all the norms of how to eat, when to shout, and whether to use the floor as a potty.

Of course I still like to believe I’m different. Maybe you do too.

But the base rate before we even think about diverging is to know what others are doing with their lives.

Which is usually school, job, taxes, marriage, mortgage, kids, taxes, pension, retirement, taxes, death (and maybe taxes).

All fluffed up

Some of these aspects of living are easier to pick up by copying – perhaps subconsciously – than others.

Fitness habits, say, or how to handle your child’s temper tantrum. Or when to suck up to a boss, which may be much the same thing.

But other stuff happens behind closed doors. We can only wonder how everyone else is doing it.

Perhaps that’s a secondary reason for the popularity of porn?

We’re all curious as to how everyone else is getting it on. For purely intellectual reasons, you understand.

Of course, for most people pornography is unrealistic. (The Accumulator excluded. He’s a legend in the bedroom and I claim my £50 in PR fees.)

We still can’t help benchmarking ourselves to all that athletic activity.

And similarly, we keep one eye on the Joneses – despite knowing better.

We usually don’t know what the Joneses earn or how they invest their money. As with their habits between the sheets, we only get the vaguest sense of whether we’re doing it right from the output presented by others. We mostly don’t know the inputs that enable it all.

And again, before you say you’re above such petty comparisons please spend 30 minutes sitting on the pavement outside Tesco asking if anybody can spare any change.

Then come back and tell me you’re oblivious to your status.

Size matters

We all agree judging the Joneses ‘success’ by the car they drive or the handbag they tout can be as misleading as listening to a 17-year old boasting about their body count.

Nobody is doing an audit here. The Joneses may be whacking it all on a credit card. Perhaps none of that spending is making them happy, anyway. The whole shebang could be a mask.

Alternatively, they might be having a ball. Zero debt and up to their eyeballs in well-provisioned pensions, an ample larder, tasteful consumer goods, and a steady supply of plane tickets to sunnier climes.

Who knows? To go deeper we’d need a more complete picture.

This might be one reason for the appeal of our FIRE-side chats on Monevator.

The subjects are Joneses of a sort, sure. But the interviews highlight factors we understand to be more consequential traits to study.

How they invest, say, rather than how they do up their homes.

Or how they save, versus where they shop.

These traits are usually invisible to us in everyday life. Yet they’re much more indicative when it comes to achieving long-term financial success than material proxies of status.

Behind the numbers

Broad brush surveys can also give us insights into what goes unseen with our fellow strivers.

Even the wooliest statistics can be surprising.

I was somewhat taken aback in 2023 to discover via a simple poll on Monevator that over 60% of our readers are higher or additional-rate taxpayers, for example.

From years of interacting with readers, I know your net worths typically skew higher than average, too.

This data has implications for the type of articles our readership is likely to want.

But it should also inform how we all approach reader comments left on our site.

Being relatively wealthy – or on their way to it – most Monevator readers’ lives won’t change much if they lose £5,000 in a downmarket, for instance, or if they make an extra £2,000 a year.

That is very different to the norm on many other sites – especially discussion forums such as Reddit, which skew a lot more young and up-and-coming.

Indeed, in an ideal world you’d see a reader’s age, income, net worth, dependents, and even their monthly outgoings alongside every comment they make – whether here or on Reddit.

That’s obviously impossible. Instead we can only get a sense of who someone is if they repeatedly write under the same username over a very long period of time.

The vast majority do not, which is why I urge constructive skepticism when it comes to financial opinions on the Internet.

You nearly always don’t know who you’re talking to. Yet personal context can change everything, turning prudence into folly or an investment into a gamble.

One (very rich) person’s £20,000 meme stock punt gone whoopsie, for instance, is another (much less rich) person’s would-be house deposit turned to smoke.

How people invest their pensions on one online platform

Enter Interactive Investor’s new SIPP index (note: affiliate link), which has been cited by a few mainstream financial writers recently.

I thought perhaps this would give us some interesting insights into how people are choosing to invest pensions, a decade into the post-freedom era.

The report – which II is touting as a quarterly ‘index’ – certainly alludes to such insights. Both on how people invest pensions in the accumulation phase, and also when they begin to drawdown an income.

So as a financially-curious human – let alone an investing blogger – it promised to be interesting reading.

In truth though I gleaned surprisingly little useful info from this first incarnation of the report.

That’s because the platform tells us what kinds of financial vehicles its customers choose to invest pensions into – but not what those funds, trusts, or other stuff actually hold, except in the case of cash.

So we discover:

Source: Interactive Investor

…but what does this really tell us? (It probably also doesn’t help that I struggle to tell the difference between some of these shades of blue!)

True, we can see there are more funds and direct equities in the accumulation phase, and a lot more in investment trusts in the drawdown phase.

But without knowing what assets these funds are actually invested in, this information is pretty useless.

What’s more, is a greater share of investment trusts held in drawdown accounts because people are choosing to lean on these products as a source of retirement income?

It could be. Or it could be that Interactive Investor clients who are already in drawdown are from an older generation, and so are simply more inclined to favour investment trusts in the first place.

A table showing the most popular funds held in SIPP accounts before and after drawdown doesn’t shed much light either:

Source: Interactive Investor

Good luck getting much insight from this data dump – except perhaps that it’d be nice to own shares in Vanguard.

It’s what we invest pensions into that matters

What would be more useful would be to see what assets such everyday investors are holding on a ‘look-through’ basis.

For example, if they own a LifeStrategy 60/40 fund, then 60% would be allocated to their equities bucket and 40% to their bond bucket.

Total everything up across all their funds, trusts, and other investments, and we’d see a more useful overall asset allocation picture. It’d also show how it shifts through time too as they move into drawdown.

Instead the II SIPP report presents an old-fashioned marketers’ perspective on investing.

The report tells us what products are popular, which is doubtless interesting if you work at Vanguard or FundSmith. But it doesn’t tell us much about investors’ attitude towards particular assets – or even risk.

It is like when friends ask me about investing and tell me they “have an ISA”.

First you have to ask whether it’s a cash ISA or a stocks and shares one. If the latter, you must ask them what’s in it. Finally you gently explain that the ISA is only a wrapper – it’s not the actual investment.

It’s similar with a fund or an investment trust. What matters most for investing insight purposes is what these vehicles hold, not how they’re set-up and marketed.

Trend spotting

To be fair, the report does offer a few interesting tidbits in the commentary, albeit based on data that’s not surfaced to us as readers as far as I can tell.

We learn:

  • Passive funds have grown more popular in the last two years. They now comprise a majority of the top ten most popular funds for both accumulators and those in drawdown.
  • Younger customers are more into ETFs than older folk who prefer traditional funds and trusts.
  • Female clients saw higher returns than male customers over the past two years across all ages. This appears to be because they hold more collective funds and trusts, and fewer individual shares.
  • Younger clients in accumulation mode have seen much higher returns over the past two years than older investors in drawdown. That’s as you’d expect, because the latter should be taking less risk.

There’s the outline of a useful report here and I hope Interactive Investor continues to develop it. They get a lot more of this stuff to chew through in the US than we do, and it’d be churlish not to welcome additional UK-centric data.

But I’d like the platform to think more holistically about asset allocation for future iterations.

Rich pickings: how the wealthy do it

All this made me curious for more. So I hunted around and found a couple of fairly recent reports that do give us more specific asset indications – albeit not for what’s held in SIPPs alone.

First up there’s the Resolution Foundation’s report on the wealth of richer families.

This report was published in 2020, so take it with a pinch of salt – we’re on the other side of a bond market rout, after all, and some of its data goes back to 2018 – but for what it’s worth the Resolution Foundation reckons wealthy families were financially positioned as follows:

Source: Resolution Foundation

This is somewhat interesting, if dated – ‘zero return’ assets being to 2020 what flares were to 1975 – but at least it shows us how a reliance on cash decreases with greater wealth, and also that risk-taking increases.

However as I read the report this chart only gives us a sniff of where people actually have their money. That’s because it only seems to apply to the ‘financial asset’ sliver of how the Resolution Foundation divvies up overall household wealth.

And crucially ‘financial assets’ would seem to exclude pensions:

Source: Resolution Foundation.

So we’re back to context again, right? If I have a chunky paid-up pension that constitutes a huge chunk of my assets, then I’m probably going to take more risks in my online share dealing account.

Anyway you can read the full report for further breakdowns, which partly unpick this while introducing other issues.

Incidentally, the Resolution Foundation’s subsequent two wealth reports don’t break down financial asset allocation at all.

Lies, damned lies, and pension statistics

The Resolution Foundation cites data drawn from the Office of National Statistics (ONS).

And poking around in the ONS archives does indeed flag up a treasure trove – albeit in rather raw form.

In particular, a 2023 data dump tells us how funded occupational pension schemes are invested, including asset allocation.

Loading the data into a spreadsheet yields the following ‘look-through’ breakdown of how pooled investments are allocated as of Autumn 2023:

Asset class Percentage
Equity 35%
Fixed Interest 10%
Property 2%
Mixed asset 35%
Hedge 1%
Private equity 0%
Money market 4%
Other* 13%

Source: ONS. * We’re told ‘Other’ pooled investment vehicle asset types include cash, commodity/energy, structured products, unknown and with profits.

Job done? Not quite. The above data only breaks down pooled investments, but total pension assets also include direct investments into everything from cash to corporate bonds to unquoted private equity.

However these amount to only about another 11% or so of pension assets.

A bigger snag is the huge allocation to ‘mixed assets’ and ‘other’. This brings us back to the Vanguard LifeStrategy problem.

We could be looking here at 80% equities and 20% bonds – or 5% kumquats and 95% vintage cars! We just don’t know.

Still, the big picture seems to be much more than 50% in equities – I’d guess closer to 70% – along with a decent chunk in bonds and a smidgeon in cash.

Which seems about right?

Funds finding favour

Finally, another way to envisage how our financial assets are invested – again not only our pensions – is to see where UK investment funds have allocated their money.

For this I turned to The Investment Association’s latest survey – and I’m pleased to feature another colourful chart to conclude our romp:

Source: The Investment Association

Again, this information only takes us so far in understanding exactly what assets the Joneses have bought into.

For starters, while the Investment Association says…

‘our funds data includes assets in open ended funds, investment trusts, ETFs, hedge funds and money market funds’

… this notably – and not surprisingly – excludes cash and directly held property.

Also, many entities besides private individuals have money invested in funds. But it’s all captured here.

And even where the money is ultimately on the balance sheet of a private investor, it will include Richard Branson and the Duke of Westminster as well as you and me. Such riches will further distort things.

Also ‘mixed asset’ is in there again to ambiguously stink up our conclusions.

Perhaps the clearest takeaway from the graph concerns a different if now very familiar story – the shrinking amount of UK fund industry money allocated to UK equities over time.

We (mostly) don’t invest pensions in pie-in-the-sky

Googling around provides plenty of other snapshots that I could have included in my review above. I haven’t exhausted the Internet!

But I’m calling time on account of my sore fingers and your waning interest.

Perhaps there is a perfect review of how pensions are invested out there somewhere. Please do share any better sources you’ve found in the comments below.

So have we learned anything from this exercise?

Only really that most money is broadly allocated across a wide range of assets – and that allocations do change with age and (possibly) with the shift to retirement.

That isn’t a newsflash. But perhaps it’s reassuring that while AI behemoths, cryptocurrencies, and meme stocks clog the agenda, the moneyed Joneses continue to plod sensibly along with broad portfolios that will outlive any particular fad.

And our pensions should be invested that way too.


The All-Weather portfolio: how it protects what you have

Conventional equity / bond portfolio splits did not acquit themselves well during the cost-of-living crisis. When the enemies at the gate were fast-rising interest rates and inflation, standard portfolios looked like a suit of armour missing its faceplate – nominally effective but with a glaring weak spot.

If only someone would invent the faceplate.

Well as it happens, somebody already has.

The All-Weather portfolio integrates a fuller spectrum of defences – including assets with a better record against the withering winds of inflation. (Hmm, smooth metaphor mixology – Ed).

We’ll examine the long-term track record of the All-Weather portfolio in a minute. But first we need to ask…

What is the All-Weather portfolio?

The All-Weather portfolio was popularised by Ray Dalio, the founder of the Bridgewater hedge fund behemoth.

The portfolio is configured to contain downside risk by including a variety of asset classes such that the portfolio as a whole is capable of performing regardless of the macroeconomic conditions.

Bridgewater identified the weather conditions that investors should prepare for as:

  • Economic growth
  • Economic slowdown
  • Inflation
  • Deflation

Those scenarios and their asset class countermeasures combine to present an investment model:

The four quadrant All-Weather economic and investment model

The model’s four quadrants represent the main economic environments that we’re likely to pass through during our investing journey.

Pack a raincoat and a sunhat

Each quadrant is staffed with the asset class(es) most likely to positively respond to its conditions:

Left-hand upper quadrant: Rising demand and low inflation is the economic equivalent of glorious sunshine. Fast-growing equities is the ready-to-wear investment outfit for this type of weather.

Left-hand lower quadrant: Falling demand and low inflation (or even deflation) means we’re in for a market storm. Shelter beneath a sturdy umbrella fashioned from bonds and cash.

Right-hand upper quadrant: We’re sweltering as rising demand and high inflation overheats the economy. Commodities are well-adapted to these conditions, even though they can feel ridiculous at other times – like wearing a giant sombrero to a board meeting.

Right-hand lower quadrant: Stagflationary intervals of falling demand and high inflation call for a coat of inflation-linked bonds. The UK’s own index-linked gilts were issued from 1981 partly to restore confidence in governmental fiscal responsibility after the stagflationary 1970s.

Imagine you find yourself invested during one of these four seasons at any given time. The model reveals which asset class is suited to each circumstance.

However even Bridgewater concedes it can’t consistently forecast shifts in economic weather fronts. Hence the All-Weather portfolio hedges uncertainty, by taking a position in each useful asset class.

Granted, this is a very simple model and asset classes aren’t guaranteed to respond according to type. Yet the empirical data shows that the strategy is relatively weather-proof over the long-term.

We’ll dig into the specific asset allocation recommended by Dalio’s portfolio in a moment, but first we need to acknowledge some caveats.

Caveat acknowledgements

Inflation-linked bonds are only certain to hedge against inflation in the short-term if you hold them to maturity. You can’t do that with linker funds, but you can with individual index-linked gilts. See our post on building an index-linked gilt ladder.

Gold is sometimes placed in the right-hand quadrants because it has a reputation as an inflation hedge. This is a myth. See our post on whether gold is a good investment.

As it happens, gold still earns its place in the All-Weather portfolio due to its lack of correlation with equities and bonds. In asset allocation terms, gold is like that Swiss Army knife tool whose original purpose is a mystery, but which often comes in handy all the same.

The Ray Dalio All-Weather portfolio: asset allocation

A passive investing version of the All-Weather portfolio could be structured like this:

  • 30% equities
  • 40% long-term government bonds
  • 15% medium-term bonds
  • 7.5% commodities
  • 7.5% gold

You may be shocked by the idea of holding 55% in bonds. The Ray Dalio portfolio is designed like this because it’s informed by the principle of risk parity, which aims to better balance risk exposure across its different building blocks.

For example, a stock-heavy portfolio loadout – an 80/20 split or even the 60/40 portfolio – is making a big bet on the performance of equities. That’s obviously fine so long as equities perform. But if you live through a multi-decade stock market depression then you have a problem.

Meanwhile, the overwhelming bulk of such a portfolio’s risk exposure (as measured by volatility) is stored in its large equity allocation. When stocks plunge the portfolio does too, because it doesn’t pack enough bonds to offset the equity downdraught.

The risk-parity approach tries to solve this issue by attempting to equalise the amount of risk associated with each asset allocation.

We’ll see clearly in a moment that this strategy works – but there is a price to pay.

Why no inflation-linked bonds?

If inflation-linked bonds are so great at combating inflation why don’t they feature in the All-Weather portfolio?

The short answer is that the portfolio was conceived in the US before TIPs existed. (TIPs – Treasury Inflation Protected Securities – are the American equivalent of the UK’s index-linked gilts).

Bridgewater acknowledges that inflation-linked bonds are an important part of the All-Weather strategy. However the investment community hasn’t updated on that fact.

It’s a strange instance of cultural inertia – a bit like the Japanese devotion to fax machines. We’ll look at a version of the All-Weather portfolio that does include index-linked gilts in the second part of this mini-series.

All-Weather portfolio drawdowns

Alright, let’s check that the All-Weather portfolio works as advertised. Is it less volatile than conventional portfolios when the market blows a gale?

This drawdown chart shows us how the All-Weather portfolio performs vs 100% equities and the 60/40 portfolio during every market setback from World War 2 onwards:

A chart showing how the All-Weather portfolio performs versus its 60/40 portfolio and 100% equity peers during a market drawdown

Data from Summerhaven1, BCOM TR, JST Macrohistory2, British Government Securities Database, The London Bullion Market Association, Measuring Worth and FTSE Russell. July 2024.

Not reliving your personal worst nightmare in the stock market when you scan the graph above? We’re using annual returns, which can blunt the extreme edges of bear markets compared to monthly peak-to-trough measurements. (Sadly, monthly data isn’t publicly available for gilts pre-1998.)

You easily notice though that the deepest declines still look like jagged ravines  – and that conventional portfolios fall much further than the All-Weather.

Navigating stock market hurricanes

100% equity portfolios in particular aren’t for widows, orphans, or those with a dicky ticker.

For example, during the UK G.O.A.T. crash of 1972-1974, the All-Weather portfolio ‘only’ dropped -28% compared to -60% for the 60/40 and a mind-bending -72% for 100% equities.

Investing returns sidebar – All returns quoted are inflation-adjusted, GBP total returns (including dividends and interest). Fees are not included. The timeframe is the longest period that we have investable commodities data for. Equities are UK, because world data is not publicly accessible before 1970. The long-term historical gilt index is dominated by long-dated maturities. Separate data is not available for intermediates. Thus the All-Weather fixed income allocation here is 40% long bonds and 15% money market/cash. Portfolios are rebalanced annually.

Most extraordinary were the Dotcom bust and the Global Financial Crisis (GFC). While conventional portfolios heaped misery on their investors, All-Weather owners were asking “bovvered?” with a shrug.

Here’s the steepest loss each portfolio bore during those market tempests:

Portfolio Dotcom Bust GFC
All-Weather -5.8% -3.4%
100% equities -38.6% -32.1%
60/40 -17.8% -14.5%

Those were two almighty crashes. The largest of the 21st Century so far! Yet the dip registered by the All-Weather portfolio would barely give you butterflies, never mind sleepless nights.

Casting our eyes back to the drawdown chart cum investing slasher flick above, we can also see that the All-Weather portfolio merely performed much the same as the 60/40 on some other occasions.

Typically this happened when bonds were crunched harder than equities and the performance of the All-Weather’s minor asset classes didn’t compensate.

The most significant of these incidents was in the late 1950s and during the 2022 bond crash.

Overall though, the All-Weather delivers on its promise of relatively smooth sailing.

See these 1934-2023 volatility figures:

Portfolio Volatility
All-Weather 9%
100% equities 20.6%
60/40 14.8%

Nice – but remember this stability has been bought by loading up on bonds and cash. And that must have cost a fair wedge of return, right?


All-Weather portfolio historical performance

Here’s the total return growth chart:

A chart showing how the All-Weather portfolio fares against its 60/40 portfolio and 100% equity counterparts
Inevitably, the All-Weather’s two-stroke equity engine leaves it underpowered versus normie portfolios.

A table of cumulative and annualised returns tells the story:

Portfolio £1 grows to… Annualised return
All-Weather £15 3.1%
100% equities £119 5.5%
60/40 £34 4%

And there’s the rub. Tricking the portfolio out with gold and commodities doesn’t circumvent the usual risk/reward trade-off (though other figures do show it’s far superior to a 30/70 equity/bond split). The dampening of drama on the downside means a lack of fireworks on the upside.

That said, if you like your returns risk-adjusted then the All-Weather delivers:

Portfolio Sharpe ratio
All-Weather 0.34
100% equities 0.26
60/40 0.27

The Sharpe ratio is a measure of risk vs reward. The higher your Sharpe ratio, the better your risk-adjusted returns. In other words, the more return you get per unit of risk, as measured by volatility3.

By that measure the All-Weather portfolio offers more growth in exchange for the pain it causes. In contrast there’s scarcely any difference between the 60/40 portfolio versus 100% equities.

Which essentially means that UK government bonds have not been a great risk-reducer historically – much less so than in the US experience – as we pointed out when we wrote: Why a diversified portfolio needs more than bonds.

Should you choose an All-Weather portfolio?

If you hate market turmoil or your focus is on holding on to what wealth you have, then Dalio’s brainchild looks like an excellent choice.

I’ve often wondered how I’d cope if I had to face a rout on the scale of 1972-74. The All-Weather portfolio would reduce my odds of ever being blasted like that.

But if you need more growth than the All-Weather offers then you’ll have to overclock your equities and accept the consequences. It’s that, extend your time horizon, or increase your contributions.

The undeniable downside of the All-Weather approach is this lack of equity oomph. That means it’s not ideal for young investors hoping for lift-off or for accumulators still far from their investing destination.

If that’s you then choose a more conventional portfolio, so long as you’re prepared to accept the risks.

How to build an All-Weather portfolio

Asset class ETF
Developed world* Amundi Prime Global (PRWU)
Long bonds SPDR Bloomberg Barclays 15+ Year Gilt (GLTL)
Short inflation-linked bonds** Amundi Core Global Inflation-Linked 1-10Y Bond (GISG)
Broad commodities*** UBS CMCI Composite SF (UC15)
Gold Invesco Physical Gold A (SGLP)
Money market Lyxor Smart Overnight Return ETF (CSH2)

*Use a global tracker fund to include emerging markets diversification.
**See comments above about using individual linkers to hedge inflation. If that’s too time-consuming then opt for a short-duration global inflation-linked bond fund hedged to GBP.
***Broad commodity ETFs diversify across commodities futures and are the right choice to replicate the asset class.

The ETFs I’ve listed in the table are just suggestions to get you started. They’re good but not intrinsically better than other choices you could make.

In truth, index trackers are like tins of soup: much of a muchness. For more options see our low-cost index funds article.

I wouldn’t use an intermediate gilt fund to replicated the original All-Weather’s 15% fixed income allocation. US intermediates are typically much shorter in duration and therefore less volatile than their UK counterparts. A money market, or short linker, or short nominal gilt fund can fill this slot.

Indeed the various options – plus material differences between the US and UK markets – might imply there’s some cunning asset allocation tweak that can squeeze a bit more juice out of the All-Weather portfolio for British investors.

We’ll investigate that in part two.

Take it steady,

The Accumulator

  1. Bhardwaj, Geetesh and Janardanan, Rajkumar and Rouwenhorst, K. Geert, The First Commodity Futures Index of 1933, Journal of Commodity Markets, 2020. []
  2. Òscar Jordà, Katharina Knoll, Dmitry Kuvshinov, Moritz Schularick, and Alan M. Taylor. 2019. The Rate of Return on Everything, 1870–2015. Quarterly Journal of Economics, 134(3), 1225-1298. []
  3. i.e. annualised standard deviation []
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What caught my eye this week.

Everyone knows that meetings are the bane of office life. The only people who love them are the genetically bossy, the work-shy, or the lovelorn office junior who has a crush on an attendee from another department.

Anyone who gets paid to produce some kind of measurable output resents being pulled away from getting on with it. Especially when they’re being pulled away by those whose job amounts to telling them to get on with it.

Meanwhile actual bosses with actual power prefer to be somewhere else making actual decisions. Or at least enjoying a business lunch.

At best meetings are a necessary evil. At worst they’re scaffolding that helps to enable the nonsense and doublespeak that pervades modern corporations.

Presetting the agenda

The most dreadful meeting I ever sat though turned into one of those soul-destroying Kakfa-esque Hall of Mirrors.

It was worse because I liked this employer and I was early enough into the job to still believe the guff.

Titter if you like, but I was looking forward to a two-day brainstorming session to ‘reset’ our aims and ‘imagine’ the future of our division.

A senior out-of-town senior manager would even be joining us to give our conclusions the official seal.

And you know what? For the first one and a half days the meeting wasn’t bad at all. Ideas flowed with the coffee. Special boxes of doughnuts and sandwiches pepped up our energy levels. Hitherto quiet employees spoke up, and they were heard. Long-standing grievances were put on notice. And sensible – even aspirational – goals were tallied on a huge whiteboard.

But then, for the final afternoon session, things turned – to my innocent mind – surreal.

The out-of-town manager was no longer mostly listening and offering a nod or a word of facilitation.

Instead he took charge to make sure that our ideas became deliverable targets.

“So what I think we’re saying is…” he began, before listing a bunch of stuff that nobody had said at all.

Nothing much was to change – we’d apparently agreed – except that our revenue goal was up 25% and we should do more spam-style mass-marketing.

Naive numpty that I was, I couldn’t believe it. I’d been totally suckered in, and I was now dismayed.

“Don’t worry,” quipped an older hand at the team-building drink session afterwards. “They’ve done this loads of times – but nothing will come of it.”

It reminds me again why I blew up my corporate career.

Meting out the pain

Derek Thompson in The Atlantic (read via MSN) has a great piece out this week on what he calls the ‘industrial-meeting’ complex. Give it a read to feel seen for your own meeting agonies (or to feel grateful to be missing out on it.)

Thompson writes:

Altogether, the meeting-industrial complex has grown to the point that communications has eclipsed creativity as the central skill of modern work.

Last year, another Microsoft study found that the typical worker using its software spent 57% of their time ‘communicating’—that is, in meetings, email, and chat—versus 43% of their time ‘creating’ documents, spreadsheets, presentations, and the like.

Today, knowledge work is, quantitatively speaking, less about creating new things than it is about talking about those things.

I guess the one bright note is that Artificial Intelligence will find it hard to sit for hours in an excessively air-conditioned office, trying to mentally plan a summer break while two colleagues argue about who is really responsible for upgrading the office firewall, and wondering if anyone will notice if you snag that last oversized chocolate chip cookie. There might be jobs left for us yet.

Have a great weekend. Especially if you’re playing for England!

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