All Weather Portfolio By Ray Dalio: Asset Allocation, Historical Data, and More

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Having a diversified investment portfolio that can handle all economic environments is vital if you want to become a successful investor. 

Instead of simply dividing your portfolio between stocks and bonds using your age or risk tolerance, you might consider using the All Weather Portfolio from Ray Dalio.

This investment strategy gives you exposure to commodities and gold, causing your portfolio to perform differently from a traditional stock and bond portfolio during bull and bear markets.

Who is Ray Dalio, and What is the All Weather Portfolio?

Ray Dalio is a billionaire investor who currently runs Bridgewater Associates, the world’s largest hedge fund firm. He is one of the most respected investors of this generation, along with the iconic Warren Buffett.

Additionally, Dalio is the author of several investment books. This includes the Principles series, which can be insightful to new and experienced investors. 

Successful hedge funds are effective at spotting growth opportunities. They are also excellent at mitigating risk so that they don’t lose all their investment gains. 

The All Weather investment strategy, sometimes referred to as risk parity, offers a way to capitalize on growth periods. However, the potential investment gains are not as strong as aggressive all-stock portfolios during bull markets.

At the same time, this allocation strategy can endure bouts of inflation and recession with minimal losses compared to the broad market. 

With this portfolio, you won’t just make money when there are periods of rising economic growth. It’s even possible to make money during an economic downturn from dividend income.

Basically, it’s set up to handle various market conditions.

All Weather Portfolio Asset Allocation

If you want to follow the same asset allocation method as Ray Dalio, the All Weather Strategy will have you invest in stocks, bonds (including inflation-linked bonds) and highly-liquid alternative assets.

The same allocation percentage recommendations apply to every investor instead of catering to your age or risk tolerance.

Plus, the potential interest rate risk goes down because you have a more diversified portfolio.

There are five different asset classes and recommended asset allocations.

These include:

  • U.S. stocks: 30%
  • Long-term U.S. Treasury Bonds: 40%
  • Intermediate-Term U.S. Treasury Bonds: 15%
  • Commodities: 7.5%
  • Gold: 7.5%

At a quick glance, the relatively low exposure to stock reduces your growth potential during a stock bull market. However, a commodities fund and gold can outperform stocks during inflationary times or recessions.

The medium-term and long-term Treasury bonds have higher yields than short-term bonds. While the bond fund share prices can go lower during a selloff, you still earn passive income from the bond interest. 

This strategy is considerably different from the balanced 60/40 portfolio (60% stocks and 40% bonds), which is popular among retirees and risk-averse investors who want to achieve risk parity.

With this strategy, you have more exposure to bonds (including inflation-linked bonds) while avoiding the accompanying volatility of stocks. It can also provide more exposure to bonds than the three fund portfolio.

Keep in mind that this somewhat unconventional investment approach doesn’t give you direct exposure to foreign stocks or investment-grade corporate bonds. 

As a side note, speaking with an investment adviser or financial advisor can be a good idea to ensure you make good investment decisions for your financial situation.

How to Build an All Weather Portfolio 

Currently, there isn’t a prebuilt All Weather strategy ETF or mutual fund available to the average investor. As a result, you must build your own investment portfolio to practice this investment philosophy.

Thankfully, you can easily invest in the All Weather Portfolio allocation through index funds and sector ETFs using free investing apps.

For example, you don’t have to buy physical gold but can purchase a gold ETF instead. However, you may prefer holding bullion or actually owning the precious metal instead of trading the gold futures price.

These various investments can have low management fees and are available through most brokers.

Depending on your online brokerage investment options, you may consider these funds first.

Note: All funds are in alphabetical order. Perform your due diligence by comparing these funds and others available through your investing platform.

Asset ClassRecommended AllocationInvestment Ideas
U.S. Stocks30%Fidelity ZERO Total Market Index Fund (FZROX)
iShares Core S&P Total Stock Market ETF (ITOT)
Vanguard Total Stock Market ETF (VTI)
Vanguard 500 Index Fund (VOO)
Long-Term U.S. Treasury Bonds (20+ years maturity date) 40%iShares 20+ Year Treasury Bond ETF (TLT)
SPDR Portfolio Long Term Treasury ETF (SPTL)
Vanguard Long-Term Treasury ETF (VGLT)
Intermediate U.S. Treasury Bonds (5-10 years)15%iShares 7-10 Year Treasury Bond ETF (IEF)
Schwab Intermediate-Term Treasury ETF (SCHR)
SPDR Portfolio Intermediate Term Treasury ETF (SPTI)
Vanguard Intermediate-Term Treasury ETF (VGIT)
Broad-Based Commodities(i.e., agriculture, energy, metals, etc.)7.5%Invesco DB Commodity Tracking (DBC)
iShares GSCI Commodity Dynamic Roll Strategy ETF (COMT)
WisdomTree Enhanced Commodity Strategy Fund (GCC)
Gold7.5%iShares Gold Trust (IAU)
SPDR Gold Shares (GLD)
Sprott Physical Gold Trust (PHYS)

Brokerages to Build Your All Weather Portfolio

When creating an All Weather Portfolio, you’ll need to use a brokerage. Here are a few of the top options that can help you with your portfolio.

M1 Finance

M1 Finance home

M1 Finance can be the easiest online brokerage to make your DIY All Weather Portfolio. This commission-free brokerage lets you assign a target allocation for each fund. 

Then, the investing app uses dynamic rebalancing to maintain your allocation targets when you invest new money. 

If you only want this investing idea to be part of your portfolio mix, you can build multiple investment pies. This way, you can invest in individual stocks or index funds with your remaining money.

The minimum investment is $100 for taxable accounts and $500 for tax-advantaged IRAs. After your first deposit, the minimum investment is only $25 to buy fractional shares of underallocated funds.

Public

Public home

Public lets you buy fractional shares in $1 increments. You might prefer this investment app since they don’t accept payment for order flow (PFOF), which can be a hidden investing fee.

Unfortunately, two potential downsides of this app are the lack of IRAs and advanced research tools.

You won’t incur many of the traditional fees you’ll pay with big-name brokerages, but you can expect to pay for cryptocurrency transactions, closing your account or receiving paper statements.

Traditional Online Brokerages

Fidelity home

You can also purchase your desired funds from a traditional online brokerage such as Schwab, Fidelity or Vanguard

These three brokerages can provide in-depth research tools and hands-on customer support that many micro-investing apps lack. You can also open taxable brokerage and tax-advantaged retirement accounts.

Each brokerage has different unique features and investment minimums.

If you are using a legacy brokerage, consider comparing ETFs and mutual funds they provide. 

The fund expense ratios can be competitive, but the minimum investment for mutual funds can be lower than the ETF version. If so, you won’t have any uninvested cash if the minimum investment is only $1. 

All Weather Portfolio vs. S&P 500

One of the best litmus tests for determining if the All Weather Portfolio strategy works is comparing its investment performance to the S&P 500. 

Is it possible to beat the stock market with All Weather Portfolio? 

Not always, but the All Weather fund strategy beat the S&P 500 from 2007 through 2015. However, it lagged the S&P 500 from 2015 through 2021, which also happened to be an impressive bull market for stocks.

The All Weather Portfolio outperformed the market during the Great Recession from 2008 to 2009. 

Then, the performance gap began to close after 2012 as the bear market ended. The S&P 500 recovered and eventually made new all-time highs.

Here are the best and worst annual returns for the testing range (2007-2021):

PortfolioAnnual ReturnBest Annual ReturnWorst Annual Return
All Weather Portfolio7.07%18.28%-10.69%
S&P 500(Vanguard 500 Index)9.29%32.18%-37.02%

Note: Portfolio Visualizer was used to produce these backtesting results for a hypothetical initial investment of $10,000 from January 2007 through April 2022.

While the All Weather Portfolio lacks the explosive gains that you can get by mostly investing in growth stocks, it has more efficient portfolio risk management. Only losing around 11% instead of 37% in one year can be less stressful for risk-averse investors.

The All Weather fund strategy may provide more downside protection than a traditional stock-bond allocation of assets. For instance, this strategy could outperform the S&P 500 as inflation remains near generational highs (time will tell).

However, younger investors with a high risk tolerance may desire more exposure to growth stocks with greater potential long-term gains. 

From 2007 to 2021, the average annual return for the S&P 500 is approximately 2% higher despite underperforming during the Great Recession.

All Weather Portfolio Visualizer
All Weather portfolio visualizer

All Weather Portfolio Positives and Negatives

Here are the advantages and disadvantages of adding the All Weather Portfolio to your investing strategy.

Pros

These are the best reasons to shift at least some of your portfolio to this allocation strategy.

Diversification

This portfolio strategy offers exposure to stocks and commodities that can provide portfolio growth during bull markets and inflationary periods. Bonds and gold can help manage risk by preserving wealth during bearish times.

Low Volatility

While this investing strategy includes volatile assets such as stocks, gold and commodities, the 55% bond exposure can provide stability and fixed income. Risk-averse investors will appreciate the reduced probability of quick and steep losses.

Earn Recurring Dividends

Your bond holdings can earn recurring dividends, even during a bear market or recession. This can improve your finances by helping you earn passive income.

Easy Setup

The same allocation recommendation applies to all investors. You only have to periodically rebalance your holdings to prevent portfolio drift.

Cons

These are the downsides and potential risks of using the All Weather investment method.

Low Exposure to Growth Stocks

A 30% allocation to stocks means that All Weather strategy investors are less likely to beat or match the market during bull markets.

High Bond Allocation

Younger investors can earn more long-term by practicing a more aggressive strategy that holds at least 70% stocks. Despite the additional volatility, stocks have more consistent growth potential than the fixed income from bonds. 

Potential Low Bond Yields 

Current bond yields may not outperform inflation, meaning you have a negative real return. As a result, your actual portfolio growth may not be sufficient to achieve your retirement goals.

No Exposure to Foreign Stocks or Corporate Bonds

You won’t directly invest in investment-grade corporate bonds or overseas companies. Other strategies hold minor positions in these asset classes to get total stock and bond market exposure.

FAQs

If you are still on the fence about this strategy, these questions can help you decide if it’s the right option for you.

Who is the All Weather Portfolio best for?

The All Weather Portfolio is ideal for risk-averse investors or those planning to retire soon.
 
You might also consider this strategy to reduce your investment risk during market downturns when the S&P 500 is more likely to have negative returns.

Are there any investors who should not use the All Weather Portfolio?

Young investors in their 20s or early 30s should consider having the majority of their portfolios in stocks.

While stocks are more volatile, they have more long-term growth potential than bonds, which are the core position of this portfolio.

Stock investors with at least 10-30 years to invest can make more money long-term despite short-term portfolio losses. This is mostly because stock share price increases can offset and exceed the negative returns during market corrections.

How risky is the All Weather Portfolio?

The All Weather Portfolio is less volatile than a stock-majority portfolio as it mainly invests in U.S. Treasury Bonds. 

You won’t experience the same maximum gains or losses. However, your average annual return is more likely to be lower since assuming more risk is necessary to invest in an asset class with higher growth potential.

Does the All Weather Portfolio require rebalancing?

You will likely need to rebalance your portfolio at least one to two times per year to maintain your target allocation.

Thankfully, All Weather Portfolio rebalancing can be easier than age-based strategies that have you reduce your stock exposure and buy more bonds as you near retirement.

Summary

The All Weather Portfolio can be an attractive strategy for investing if you have a conservative or moderate risk tolerance and you need a solution that can weather all economic environments.

You can still enjoy the upside gains from your stock investments during periods of economic growth, but your portfolio will be more stable during bear markets.

However, you must be comfortable with bonds being your primary position. Risk-averse investors who want to preserve wealth and avoid market volatility stand to benefit the most from this strategy.

On the other hand, young investors with several decades before retirement should consider primarily investing in stocks. Even though these are inherently riskier, they can help you make more money over your investing career. 

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