Skip to content →

The Dragon Portfolio for Retail Investors

chris cole portfolio

The Dragon Portfolio, created by Christopher Cole, is intended to protect and grow wealth for over 100 years. In this post, we discuss how any retail investors can create their own version of the dragon portfolio with instruments available to them.

Content

Introduction

Built to withstand almost any economic and financial situation, the dragon portfolio created by Chris Cole from Artemis Capital Management combines different asset classes that, when put together, will perform well regardless of the economic growth or inflation/deflation dynamics.

As a result, this asset allocation has also been called the 100-Year Portfolio. This is because all its returns were backtested for a period over a 100 years. The goal is to ensure that generational wealth does not get destroyed by macroeconomic variables.

Investors who seek solid returns over the medium and long term while, at the same time, not wanting to be overexposed to adverse circumstances will find this information useful. Diversifying well allows you to reduce risk and maintain high potential returns.

The most important thing when reducing risk is focusing on tail risk. Tail risk focuses on the worst-case scenario, and that is worth our attention.

It does not really matter if our portfolio experiences a 20% or 25% drawdown every 10 years. What truly matters is how much we stand to lose when things get as bad as they can get. We can survive a 25% loss, but an 80% loss would pretty much wipe us out.

This is why the focus of investing for such long periods of time is to achieve solid returns while making sure that our growth is and will be protected.

The Retail-adjusted Dragon Portfolio

The so-called Dragon Portfolio has certain asset classes that are difficult for retail investors to invest in. Be it because you want to manage your investments yourself or because you do not want to pay the high management fees of a top-level professional, we discuss how retail investors can build a dragon portfolio.

I have made some small adjustments to the original dragon portfolio to add some more diversification to it, as well as slightly higher returns. This is also the result of looking for investments instruments that are easily available to everyone with access to an online brokerage account.

The biggest macroeconomic variables when it comes to investing are inflation and the level of economic activity. By building a diversified asset mix we make sure that our portfolio can survive and perform regardless of what happens in the future.

These are the asset classes and respective weights of our retail-adjusted dragon portfolio:

  • Developed Market Stocks (MSCI World): 25%
  • Emerging Markets Stocks (MSCI EM): 10%
  • Global Bonds: 15%
  • Cash: 10%
  • Commodities: 15%
  • Gold: 20%
  • Silver: 5%

As you can see, this portfolio can survive in any macroeconomic scenarios. We would own assets that can perform in various circumstances. Whether there is economic growth or a depression, and whether there is inflation or deflation.

Out retail-adjusted dragon portfolio will beat any portfolio composed exclusively of only stocks, bonds, cash, commodities or precious metals. While every asset class will have its moment to shine at some point in the future, over the next 100 years the combination of all of them will be the best option.

More importantly, not only will the combined returns be stronger, but we will be less exposed to significant drawdowns that can threaten our wealth.

Building our own Dragon Portfolio with ETF

One of the best things about this portfolio is that all of its assets are liquid. If we need to raise cash for whatever reason, we can easily sell a portion of our portfolios without disrupting our investment strategy or having to sell illiquid positions.

Additionally, the retail-adjusted dragon portfolio can be built exclusively with low-cost exchange-traded funds. There is no need to spend money on high management fees if we know what we want to invest in. Lower fees will maximize net returns and the longer our time horizon, the bigger the difference that will make in our favor.

When it comes to finding appropriate ETFs, you will have plenty of alternatives. There are several ETF sponsors that track the same index (e.g. iShares, Vanguard, Xtrackers) and various indices that represent almost the same investment (e.g. MSCI ACWI, FTSE All World).

Here is a list of exchange-traded funds that can be used to build the retail-adjusted dragon portfolio. I added each fund’s ISIN which you can use to search for them. While you can use these, bear in mind there are plenty of alternatives available. The indices you select will ultimately depend on what is available to you and the fees associated with them:

As you can see, we can have our own dragon portfolio by buying 6 ETFs and keeping an interest-paying bank deposit. Instead of the deposit, if we have a considerable amount of cash, I would look for a money markets fund or an ETF that invests in short-term treasuries. For example, there are ETFs that only hold US Treasury bonds with maturities of less than 3, 6 or 12 months.

Conclusion

As you can see, investing in and controlling a dragon portfolio does not have to take more than 10 minutes. And you would be investing like the best professionals.

One of the best things about this investment strategy is that it is fully scalable. It does not matter if you have $50,000 to invest or $50 million. These investments can accommodate as much capital as you have to invest.

The two most important things to ensure a satisfactory long-term outcome are knowledge and discipline.

Knowledge is important to always understand what it is we are pursuing with this investment portfolio. Regardless of which market may be experiencing a rally at any given time, be it stocks or gold, we need to remember why we have built this asset allocation and what it will achieve in the future.

At the same time, discipline is key to stick to the plan. We need to be immune to greed or fear when taking decisions. If we want to follow the retail-adjusted dragon portfolio, we have to stick to the plan. Even when markets are booming or crashing.

If you like this information, I encourage you to subscribe to my newsletter:
Clear Finances

And if you would like to read about another interesting topics, check out the following link:
Comparison between Active and Passive Investing

Published in Learn How To Invest

Tagged in

Comments are closed.