Before You Start
- Basic understanding of ETFs and asset allocation
- Knowledge of the "All-Weather" portfolio concept (Ray Dalio’s approach)
- Access to a computer with internet
- Optional: Account on a broker (e.g., Trade Republic, DEGIRO) if you want to later implement your portfolio
Time needed: 30–60 minutes
What you'll need: Access to PortfolioVisualizer (free, no registration needed), and optionally JustETF
Backtesting your ETF portfolio is the most reliable way to see how your chosen mix might have performed in the past. For European investors, this is crucial: ETF choices, EUR currency, and available platforms all differ from those in the US. This tutorial walks you through backtesting an All-Weather ETF portfolio using tools accessible in Europe, with specific EUR-based examples and clear guidance on interpreting the results.
Step 1: Define Your All-Weather Portfolio – the European Way
What to do: Choose the ETF building blocks for your All-Weather portfolio, using funds domiciled in Europe and available in EUR. Dalio’s classic mix is:
- 40% Bonds (long-term government)
- 30% Equities
- 15% Intermediate bonds
- 7.5% Commodities
- 7.5% Gold
For Europeans, here’s an accessible ETF lineup:
- Global Equities: iShares Core MSCI World UCITS ETF (Acc) – IE00B4L5Y983
- Long-Term Euro Gov Bonds: iShares € Govt Bond 20yr+ UCITS ETF – IE00B1FZS806
- Intermediate Euro Bonds: Xtrackers II Eurozone Government Bond 5-7 UCITS ETF – LU0290355717
- Commodities: iShares Diversified Commodity Swap UCITS ETF – IE00BDFL4P12
- Gold: Invesco Physical Gold ETC – IE00B579F325 (ETC, but widely used for gold exposure)
Why it matters: Using EUR-denominated, EU-domiciled ETFs avoids US estate tax, reduces currency risk, and ensures UCITS compliance—essential for European investors.
What can go wrong: Picking ETFs not available in your broker, or denominated in USD, can introduce unnecessary costs or risks.
Pro Tip
Double-check each ETF’s fact sheet for EUR denomination and UCITS status before proceeding.
Step 2: Gather Ticker Symbols and Historical Data
What to do: Collect the ISINs/tickers for your chosen ETFs. You’ll need these to enter them into backtesting tools.
- iShares Core MSCI World UCITS ETF (Acc) – ISIN: IE00B4L5Y983
- iShares € Govt Bond 20yr+ UCITS ETF – ISIN: IE00B1FZS806
- Xtrackers II Eurozone Govt Bond 5-7 UCITS ETF – ISIN: LU0290355717
- iShares Diversified Commodity Swap UCITS ETF – ISIN: IE00BDFL4P12
- Invesco Physical Gold ETC – ISIN: IE00B579F325
If you can’t find an ETF in a tool, try searching by ISIN or ticker on JustETF.
Why it matters: Accurate tickers ensure you’re testing the correct funds with real historical data.
What can go wrong: Some backtesting tools (like PortfolioVisualizer) use US tickers or have limited European ETF data. See below for workarounds.
Pro Tip
If your ETF isn’t found, you can substitute with a similar index or use mutual fund proxies for backtesting the asset class.
Step 3: Set Up Your Backtest in PortfolioVisualizer
What to do: Go to PortfolioVisualizer’s Backtest Asset Allocation tool. Enter your ETFs (or closest equivalents) and assign your desired weights. For our All-Weather example:
- MSCI World: 30%
- Long-Term Euro Bonds: 40%
- Intermediate Euro Bonds: 15%
- Commodities: 7.5%
- Gold: 7.5%
If your exact ETF isn’t available, use the closest index (e.g., “MSCI World” for global equities, “EURO Govt Bonds” for euro bonds) or consider using the “Custom Assets” feature with uploaded data (advanced users only).
Why it matters: Backtesting shows how your asset mix would have performed historically, revealing potential drawdowns, volatility, and returns—before you invest real money.
What can go wrong: Data limitations: PortfolioVisualizer’s free version may lack certain European ETFs or EUR currency. If so, use JustETF’s “Portfolio Analyzer” for EUR-based results, or test in both tools for comparison.
Pro Tip
On JustETF, use the “My Portfolio” feature to build and analyze your EUR-based ETF portfolio with real, Europe-domiciled funds.
Step 4: Run the Backtest and Analyze the Results
What to do: Click “Analyze Portfolio” or “Start Backtest.” Focus on these key results:
- Compound Annual Growth Rate (CAGR): The average annual return
- Maximum Drawdown: The largest historical loss from peak to trough
- Standard Deviation: A measure of volatility (risk)
- Sharpe Ratio: Return per unit of risk
For example, you might see (for 2013–2023, EUR):
- CAGR: 5.2%
- Max Drawdown: -12.5%
- Standard Deviation: 7.8%
- Sharpe Ratio: 0.65
Why it matters: These numbers help you judge whether the portfolio meets your risk tolerance and return expectations. Max drawdown tells you how much the portfolio might drop during a crisis; standard deviation reflects how “bumpy” the ride is.
What can go wrong: Past performance ≠ future results. Backtests can’t predict regime changes or black swan events. If you use USD-based proxies, currency effects may distort EUR investor reality.
Pro Tip
Compare your All-Weather portfolio against a 100% equity or 60/40 EUR portfolio to see the differences in risk and return.
Step 5: Interpret Drawdowns, Returns, and Volatility
What to do: Look at the years with the worst performance (drawdowns) and highest volatility. Ask yourself:
- Could you stay invested through a -12% drawdown?
- Is the lower volatility worth the trade-off in returns?
- Does the portfolio deliver smoother returns than a pure equity portfolio?
Why it matters: Understanding these stats, not just the average return, prepares you for real-life investing—especially when markets get rough.
What can go wrong: Many investors overestimate their risk tolerance. If the backtest shows more volatility than you can stomach, consider adjusting the bond/equity mix before investing.
Pro Tip
Use the rolling returns chart (if available) to see how the portfolio performed across different start/end dates, not just the best or worst single year.
Step 6: Tweak and Re-Test Your Portfolio
What to do: Adjust your allocations or ETF choices based on your findings. For example, you might increase bonds for lower risk, or swap a global equity ETF for a Europe-only ETF if you want more local exposure.
Re-run the backtest after each change. Document the impact on CAGR, drawdown, volatility, and Sharpe ratio.
Expected outcome: You’ll see, in numbers, how each tweak affects the portfolio’s historic risk/return profile.
Why it matters: This “what-if” process lets you optimize your portfolio for your real risk profile—before you commit money.
What can go wrong: Overfitting: Chasing the best backtest results can lead you to a portfolio that looks great in the past, but may not perform as well in the future.
Pro Tip
Once satisfied with your mix, save your portfolio settings on JustETF or export them as a CSV for future reference.
Step 7: Prepare to Implement with Your Broker
What to do: With your final ETF mix, check that each ETF is available on your preferred broker (e.g., Trade Republic, DEGIRO, Scalable Capital). For example, in Trade Republic:
- Tap Search → enter the ETF ISIN (e.g., IE00B4L5Y983)
- Select the ETF and tap Buy or Create Savings Plan
- Repeat for each ETF, matching your target allocations as closely as possible
Expected outcome: You should now have a clear, actionable plan to implement your All-Weather ETF portfolio, with allocations tailored to your personal risk profile and tested against historical data.
Common Mistakes in ETF Portfolio Backtesting (Europe)
- Using US-domiciled ETFs: These can introduce tax problems for Europeans and distort results due to USD currency risk.
- Ignoring EUR currency effects: Always backtest in EUR, or at least understand the impact of currency swings.
- Relying on a single tool: Cross-check results using both PortfolioVisualizer and JustETF for accuracy.
- Overfitting to the past: Don’t chase the “perfect” backtest—future returns will differ.
- Neglecting costs: Remember to factor in ETF TERs and broker commissions, which can subtly erode returns.
Next Steps
- Consider reading How to Use Portfolio Backtesting Tools for European Investors in 2026 for a deeper dive into tool options and advanced strategies.
- Explore How to Use Fractional Shares to Build a Diversified ETF Portfolio in Europe if your broker supports fractional ETF trading.
- Once you’re confident, start small—implement your portfolio with a modest amount and see how it feels in real life before scaling up.
Disclaimer: This article is for educational purposes only and does not constitute financial advice. Always do your own research and consider consulting a qualified financial advisor before making investment decisions.