The Portfolio Built To Survive Every Crash | Jared Dillian

Episode Summary

Executive Summary: Jared Dillian discusses his new book, The Awesome Portfolio, a low-volatility 20/20/20/20/20 allocation of stocks, bonds, gold, cash, and real estate that he says has historically delivered strong returns with dramatically smaller drawdowns than stock-heavy portfolios. He also argues the Fed’s current posture is intentionally steepening the curve, comments on weak data, Treasury/Japan FX dynamics, market sentiment after a leverage unwind, and remains constructive on gold while cautious on financials and energy.

Main Topics: The Awesome Portfolio investment framework (Priority: 5/5): Dillian explains his new book and the portfolio design he says maximizes risk-adjusted returns by combining stocks, bonds, gold, cash, and real estate equally. Why the portfolio is not widely adopted (Priority: 4/5): He argues the barrier is mostly behavioral and educational: investors fear gold and cash allocations, and many advisors default to traditional stock-heavy models. Fed policy, curve steepening, and monetary tightening (Priority: 5/5): Dillian interprets the recent Fed meeting as an intentional attempt to steepen the yield curve, tighten conditions via the long end, and eventually create room to cut short rates. Weak macro data and interest-rate outlook (Priority: 4/5): He cites soft payrolls, CPI/PPI/PCE, and JOLTS, and says rate hikes are unlikely despite market pricing, while he is positioned for lower front-end rates. Market structure, leverage unwind, and sentiment (Priority: 4/5): He frames the recent selloff in momentum/memory names as a liquidation event and possible bear-market starting gun, then notes a sharp rebound may indicate real inflows. Sector views: financials, energy, healthcare, staples, gold (Priority: 4/5): Dillian is bearish on financials, cautious on energy after selling positions into strength, likes staples and healthcare defensively, and remains bullish on gold based on technicals. Publishing and attention spans (Priority: 2/5): He comments that books are getting shorter as attention spans shrink, making long-form finance writing harder in the age of social media and AI content.

Key Arguments: A simple 20%/20%/20%/20%/20% allocation can materially reduce volatility and drawdowns versus stock-heavy portfolios while still delivering strong long-run returns. The portfolio’s appeal is its behavioral advantage: smaller drawdowns make investors less likely to panic-sell and interrupt compounding. A 20% cash allocation is not merely a drag; it acts as dry powder and an option on future opportunities. The Fed’s recent action was likely deliberate: by not hiking and allowing long rates to rise, it tightens conditions more effectively than a front-end hike would. The recent market weakness in high-flying names likely reflected forced liquidation by highly levered players, with the broader selloff potentially marking a regime shift. Retail investors remain stubbornly convinced that stocks always go up, which sustains risk appetite even after sharp drawdowns in some segments. Gold appears to be basing, and a move above key resistance would signal a blue-sky breakout. Energy had already run too far on the chart, so selling was driven more by technical exhaustion than by a precise geopolitical call.

Data Points: Book release date: September 8 - The Awesome Portfolio is scheduled to come out on September 8. Portfolio allocation: 20% stocks, 20% bonds, 20% gold, 20% cash, 20% real estate - Dillian’s equal-weight model he says produced the best Sharpe ratio among linear combinations of asset classes. Historical annual return: Just about exactly 9% per year since 1971 - Performance of the Awesome Portfolio since gold became a practical investable asset. Stock market annual return: 11% per year since 1971 - Used as the benchmark tradeoff versus the Awesome Portfolio. Portfolio volatility: About half the volatility of an 80/20 portfolio - Dillian says the model substantially reduces swings relative to stock-heavy allocations. Worst drawdown: Down 12% - Occurred in 2022 for the Awesome Portfolio. Second-worst drawdown: Down 9% - Occurred during the financial crisis for the Awesome Portfolio. Third-, fourth-, and fifth-biggest drawdowns: Down 1% - Illustrating how shallow the historical drawdowns were beyond the two worst episodes. SP 500 drawdown in financial crisis: Down 57% from 2007 to 2009 - Used to argue that stock investing is not as “safe” as many assume. SP 500 drawdown in 1929: 89% - Cited as an example of severe stock-market risk. Current cash yield: 4% to 4.5% - Dillian says cash is more attractive than many investors think in the present environment. Money market rate in late 1970s/early 1980s: 14% to 15% - He notes cash was once the best-performing component of the portfolio. Recent long-end bond yield level: About 5.30 at peak, around 5.18 at time of interview - Referenced while discussing the steepening move and bond market reaction. Fed pricing out to June next year: 1.7 hikes priced in - Dillian says he thinks the correct number is zero or negative. Gold resistance: 4,250 - He says a move above this level would mark a blue-sky breakout. Gold support/basing area: Below 4,000 - He wants a small test below 4,000 to complete the base before a breakout. Energy prices move: Oil down about 8 to 9 dollars - After he exited energy positions, oil sold off further. FX intervention scale: First explicit Treasury yen intervention in about 30 years - Discussion of Treasury’s role alongside Japan’s currency actions. Publishing length comparison: 135,000 words to 50,000 words - His first book versus The Awesome Portfolio, illustrating shorter modern books.

Pivotal Quotes: "This thing had the highest sharp ratio of any linear combination of asset classes I could come up with." — Jared Dillian: Describing why he believes the equal-weight multi-asset portfolio is superior on a risk-adjusted basis. "What I'm offering with this portfolio is literally just happiness." — Jared Dillian: Explaining that the portfolio’s main value is lower volatility and fewer investor mistakes, not maximum upside. "I think this was completely intentional, 100% intentional." — Jared Dillian: His interpretation of the Fed’s decision not to hike and the resulting steepening of the curve.

Implications: Listeners should take away that portfolio design and investor behavior matter as much as headline returns. Dillian expects tighter financial conditions via higher long rates, sees weak data supporting lower front-end rates, and remains constructive on gold while favoring defensive sectors over cyclical or crowded trades.