Asset Allocation – How To Build Your Portfolio?

Diversification reduces risk. It is important to not only diversify across stocks but also across different asset classes. This is key for managing your portfolio.

Meb Faber’s study measures performance across 3 asset classes: Stocks, Bonds, and Real Assets. Real Assets include precious metals (like gold and silver) and real estate (REITs).

His study also includes different portfolios suggested by investors like Ray Dalio, Warren Buffet, and so on.

Here are the different portfolios and the details of its allocation.

Portfolio’s For Asset Allocation

All-Season Portfolio:

  • The All Seasons portfolio was popularized by Tony Robbins in his book MONEY Master the Game: 7 Simple Steps to Financial Freedom.  It is a simplified version of Ray Dalio’s All-Weather portfolio that can be easily implemented by everyday investors.
  • Stocks – 30%
  • Bonds – 55%
  • Real Assets – 15%

Permanent Portfolio:

  • Stocks – 25%
  • Bonds – 50%
  • Real Assets – 25%

Classic 60/40 Portfolio:

  • Stocks – 60%
  • Bonds – 40%

Rob Arnott’s Portfolio:

Rob Arnott is the founder and chairman of Research Affiliates, a research firm that has over $170 billion in assets managed using its strategies. 

  • Stock – 30%
  • Bonds – 40%
  • Real Assets – 30%

Warren Buffett’s Portfolio:

Warren Buffett mentioned asset allocation instructions for his trust in his 2013 shareholder letter:

“What I advise here is essentially identical to certain instructions I’ve laid out in my will. The cash will be delivered to a trustee…. My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors …”

  • Stocks – 90%
  • Bonds – 10%

Returns After Inflation (1973-2013)

  • T-Bills: 5.27%
  • Bonds: 7.74%
  • Stocks: 10.21%
  • All-Season: 9.5%
  • Permanent: 8.53%
  • 60/40: 9.6%
  • Rob Arnott: 9.5%
  • Warren Buffett: 9.82%

Here is a table of the results of each strategy’s performance in different time periods. The table also shows real returns and nominal returns. Nominal returns are CAGR returns while, real returns are nominal returns – inflation.


Here is what Meb concludes about Asset Allocation.

Cooking often reminds me of asset allocation and investing. As long as you have some flour, baking soda, sugar, eggs, butter, and chocolate chips – the exact amount really doesn’t matter. Some people like vanilla in the recipe, other people nuts, and some even more chocolate. But as long as you have some of all of the main ingredients, the results are usually similar, and delicious. 

Investing is similar. As long as you have some of the main ingredients –stocks, bonds, and real assets- the exact amount really doesn’t matter all that much. Does adding small allocations to emerging bonds (nuts), frontier markets (vanilla), or more chocolate chips (stocks) vastly change the outcome? Not really. The only thing that does really alter the outcome is if you go and mess with all the ingredients while they are cooking – a sure recipe for disaster. The single biggest take away from this book is to not ruin your allocation by paying too much in fees.


Original paper

Portfolio Tool

Book: Money Master the Game