Have you ever wondered how billionaires continue to get RICHER, while the rest of the world is struggling?

I study billionaires for a living. To be more specific, I study how these investors generate such huge and consistent profits in the stock markets — year-in and year-out.

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Over a historical 30-year time frame from 1984 to 2013, the portfolio produced stellar results of nearly 10% per year with the worst down year being 2008 when the model dropped just 3.93%.  Those are impressive and consistent returns with very little downside volatility.

Ben Carlson of the blog, A Wealth of Common Sense. did an excellent review and back test  of the strategy through multiple time frames that is worth a read as well.

For those that are interested in implementing this strategy, take a look a the following 5 ETFs:

Vanguard S&P 500 ETF  (VOO)

iShares 7-10 Year Treasury Bond ETF  (IEF)

iShares 20+ Year Treasury Bond ETF  (TLT)

SPDR Gold Shares ETF  (GLD)

iPath Dow Jones-UBS Commodity Index Total Return ETN  (DJP)

These are funds with low expenses, established track records, high liquidity, and cover the essential components of the all weather portfolio.  However, there are many other alternatives that may make more sense depending on your experience or preference.

While it may seem easy on the surface to implement a portfolio of this design,especially using low-cost ETFs. I have some concerns about this strategy that might not make it perfect for everyone.

Concern #1:  Investor Psychology

It’s easy to say on paper that you can handle the volatility and want that promised 10% return going forward, but its another thing to experience it in real life.  During periods of stock market downturns, inflationary cycles, and other stumbling blocks you are going to see individual investments in that portfolio produce adverse results.

The premise is that one investment zigs, while the other zags and they offset each other in a complementary manner.  However, most investors aren’t disciplined enough to hold GLD and DJP through the last three years as they drop like a stone.  In addition, you will be buying more on the way down to stay in line with your asset allocation objectives, while selling down the stocks and bonds that are performing well.

You have to be 100% committed and disciplined to the portfolio over a long period of time in order for it to produce the type of results that you desire.  In my experience, the majority of investors are more short-term focused  and pay too much attention to the price swings of individual positions.  This leads to performance chasing and asset allocation shifts at inopportune times.

Concern #2: Regular Rebalancing

Rebalancing the portfolio on a regular basis is another key component of this strategy that many investors don’t take the time to do.  They like to let their winners run and cut their losers quickly.  In order to produce a successful outcome, you will be forced to reduce exposure to the strongest performers and buy more of the funds that are lagging their peers.

Staying in line with the correct asset allocation targets allows for each holding to affirmatively offset its peers at the appropriate times.  One advantage of this methodology is that it can be more tax efficient than trading on a whim.  You just have to be more proactive about this chore in order for it to succeed.