The Portfolio Built To Survive Every Crash | Jared Dillian
Jared Dillian discusses his new book 'The Awesome Portfolio,' a diversified 20/20/20/20/20 split (stocks/bonds/gold/cash/real estate) that has delivered 9% annual returns since 1971 with only 12% maximum drawdown and half the volatility of traditional portfolios. He also shares his contrarian views on Fed Chair Warsh's recent decision to hold rates steady, which he interprets as intentional yield curve steepening to tighten monetary policy while letting markets take the lead.
Summary
Jared Dillian, editor of The Daily Dirt Nap, discusses his seventh book 'The Awesome Portfolio,' releasing September 8th. The portfolio allocates 20% each to stocks, bonds, gold, cash, and real estate. Dillian developed this through seven years of tinkering, discovering it has the highest Sharpe ratio of any linear asset class combination he tested. Since 1971, it has returned approximately 9% annually with only 0.6 Sharpe ratio and half the volatility of an 80-20 stock/bond portfolio. Most remarkably, the worst drawdown in this portfolio's 50+ year history was 12% in 2022, with the second worst being only 9% during the 2008 financial crisis. By contrast, the S&P 500 fell 57% from 2007-2009. The stock market has returned 11% annually since 1971, so the awesome portfolio trades just 2% in performance for dramatically reduced volatility and emotional stress.
Dillian argues that most financial advisors recommend 60/40 or 80/20 portfolios due to lack of awareness, psychological discomfort with 20% gold allocation, dismissal of 20% cash as dragging returns, and potentially because advisors collect fees on invested assets rather than cash. He emphasizes that cash provides optionality—the ability to deploy capital opportunistically—and that 20% gold has historically been less volatile than most assume, particularly during crises.
Regarding the Federal Reserve, Dillian presents a contrarian interpretation of Chair Kevin Warsh's recent meeting decision to hold rates steady. Rather than viewing this as a credibility loss, Dillian argues it was completely intentional. He claims Warsh deliberately allowed the yield curve to steepen aggressively—with the long end getting 'obliterated'—to achieve immediate monetary tightening without raising Fed funds rates. This strategy accomplishes multiple objectives: it tightens monetary policy through higher long-term rates, avoids rate hikes that would flatten the curve (which would be stimulative via lower mortgage rates), and removes the optics problem Trump has with Fed funds rates. Dillian believes Warsh is philosophically committed to reducing the Fed's role in monetary policy and letting markets dictate outcomes.
On future rate expectations, Dillian states he believes Warsh will not hike rates regardless of incoming data, positioning himself long sofas and two-year bonds. He notes that markets are pricing in 1.7 hikes through June 2025, but he believes the true number is zero or negative. He also expects the curve to steepen for 6-12 months, creating a steeper yield curve environment.
Regarding the recent market turmoil surrounding the Leopold fund liquidation, Dillian views it as 'the starting gun for a bear market,' analogous to the February 27, 2007 ABX gap down that preceded the financial crisis. He notes unusual price action with the S&P crashing 100+ handles into the close and views it as significant even though Leopold was likely a concentrated leveraged player. However, recent strength suggests real money inflows, evidenced by stocks motoring higher with no intraday pullbacks.
On sectoral positioning, Dillian is bearish on financials based on technicals, sees healthcare and staples as constructive (generally negatively correlated with everything else), and recently liquidated energy positions after selling at $90 oil, expecting returns to $60-65 if the Iran war ends. He maintains bullish positioning on precious metals, expecting a base to form with one more test below $400 before a breakout above $425 initiates a move back to highs.
About this episode
Markets are relearning that durable wealth comes from disciplined risk management, not chasing momentum or relying on central bank intervention. This week, we're joined by Jared Dillian, editor of The Daily Dirtnap and author of The Awesome Portfolio, to discuss why markets may be entering a new regime where risk management matters more than maximizing returns. We explore Warsh's Fed strategy, the case for a steeper yield curve, why the AI trade may be masking economic weakness, how sentiment shifts after crowded trades unwind, and why gold and diversified portfolios could be poised for a comeback. Enjoy! TIMESTAMPS: 00:00 Intro 01:01 The Awesome Portfolio 04:42 Why Investors Misunderstand Risk 11:15 Warsh’s Intentional Policy Shift 14:17 The Yield Curve Meets Weak Data 17:32 Markets To Do The Heavy Lifting 20:00 Treasury Enters The Currency Fight 22:58 The Bear Market’s Starting Gun 27:57 Defensive Stocks, Oil And Gold FOLLOW JARED › X/Twitter – https://x.com/dailydirtnap › Pre-Order The Awesome Portfolio –https://a.co/d/01yslEpJ FOLLOW THE SHOW › Forward Guidance – https://x.com/ForwardGuidance › Felix – https://x.com/fejau_inc › Telegram – https://t.me/+CAoZQpC-i6BjYTEx › Blockworks – https://x.com/Blockworks EVENTS › Join us at Digital Asset Summit 2026 Asia October 7th & Digital Asset 2026 London November 10-11th https://blockworks.com/events DISCLAIMER Nothing said on Forward Guidance is a recommendation to buy or sell securities or tokens. This podcast is for informational purposes only. Any views expressed are opinions, not financial advice. Hosts and guests may hold positions in the companies, funds, or projects discussed.
Key Insights
- Dillian argues the Awesome Portfolio (equal 20% allocations to stocks, bonds, gold, cash, real estate) achieved a 0.6 Sharpe ratio since 1971 with only 12% maximum drawdown versus 57% for the S&P 500 in 2007-2009, suggesting dramatic risk reduction comes with only 2% performance sacrifice
- Dillian claims Kevin Warsh's decision to hold rates steady while the long end sold off was completely intentional—designed to steepen the yield curve and achieve monetary tightening without raising Fed funds rates, allowing him to reduce the Fed's role in monetary policy
- Dillian contends that most RIAs recommend 60/40 or 80/20 portfolios due to psychological discomfort with 20% gold holdings, dismissal of 20% cash as a drag, lack of awareness of alternatives, and potential fee collection incentives on invested assets rather than cash
- Dillian asserts that 90% of retail investors capitulate and sell at lows during major drawdowns, stopping their compounding, whereas an awesome portfolio structure designed to have minimal drawdowns removes the emotional component that drives poor decision-making
- Dillian interprets the Leopold fund liquidation and subsequent market weakness as the 'starting gun for a bear market,' analogous to the February 27, 2007 ABX gap down that presaged the financial crisis, suggesting broader systemic implications beyond a single fund blowup
- Dillian claims he believes Warsh will not hike rates regardless of future economic data because of fundamental philosophical differences between Warsh and previous Fed chairs regarding the Fed's role, with Warsh seeking to diminish the institution's influence over monetary outcomes
- Dillian argues that people still maintain an indefatigable belief that stocks always go up despite recent drawdowns in momentum and technology names, and questions whether any realistic drawdown size would disabuse retail traders of this conviction
- Dillian contends cash positions provide optionality rather than merely dragging returns—illustrating this with the example of having liquidity available to deploy on opportunistic real estate purchases while vacationing
Topics
Transcript
nothing said on for guidance is a recommendation to buy or sell any investments or products all right what's going on everybody welcome back to another episode of ford guidance and excited to be joined today by jared dillian editor of the daily dirt nap and a regular guest of the show um jerry always great to have you on the show. What's going on? Today's Black T-shirt Day, I'm happy to announce. Yeah, in the heat of the summer, what's better than just wearing a black T-shirt, apparently? Yeah, yeah, exactly. Awesome. Well, look, yeah, always great to have you on the show. I think the last time you joined were with your, with your man, Tony Greer. And…
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