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Should you consider an All Weather Portfolio?

Updated: Mar 19

What is the All Weather Portfolio?


The All Weather Portfolio was created by Ray Dalio, founder and chief investment officer of Bridgewater Associates, and was then popularised by Tony Robbins in his book MONEY Master The Game.



The portfolio aims to survive all economic conditions using diverse types of assets that perform differently during those different “seasons.” The diversification of using a variety of inherently uncorrelated asset classes helps mitigate risk and volatility. The All Weather Portfolio can be referred to as the All Seasons Portfolio.


The first step that Dalio and his team took to design the portfolio was to find an answer to a simple question:


What kind of investment portfolio would you hold that would perform well across all environments, be it a devaluation or something completely different?

Dalio and his team concluded that while it is difficult to predict individual assets and it is a fool’s errand to time the market, they behave in understandable ways based on cash flows in the prevailing economic environment. They then arranged those environments into four quadrants:


Should you consider an All Weather Portfolio? | The Globetrotting Investor | Value Investing | Stock Analysis
Source: The All Weather Story - Bridgewater

Dalio and his team then continued to fill up each quadrant with assets that perform well in that economic condition and then balanced the asset weights to achieve risk parity for each situation. This is the resulting framework:


Should you consider an All Weather Portfolio? | The Globetrotting Investor | Value Investing | Stock Analysis
Source: The All Weather Story - Bridgewater

Translate this framework by allocating specific asset classes, Dalio’s All Weather Portfolio will look like the following image. As you notice, more than half of the portfolio is made up of bonds.

Should you consider an All Weather Portfolio? | The Globetrotting Investor | Value Investing | Stock Analysis
The Globetrotting Investor

If you are interested in the full story, you can visit The All Weather Story by Bridgewater.


The All Weather Portfolio ETFs


You can construct the All Weather Portfolio by investing in ETFs. For example, you can invest in the Vanguard Total Stock Market Index Fund ETF (VTI) to represent the 30% stocks. Likewise, you can invest in the SPDR Gold Shares ETF (GLD) to represent the 7.5% gold.


For illustrative purposes, by investing in different types of ETFs, the All Weather Portfolio can look something like this:

Should you consider an All Weather Portfolio? | The Globetrotting Investor | Value Investing | Stock Analysis
The Globetrotting Investor

*This is not a financial recommendation. It is for illustrative purposes.


Pros of the All Weather Portfolio


The All Weather Portfolio becomes especially appealing during market turmoil, particularly for investors who have a low-risk tolerance or are primarily concerned with capital preservation.


Looking at the graph and indicators below, we can see that the All Weather Portfolio had lesser volatility, a higher risk-adjusted return (Sharpe ratio), and significantly smaller drawdowns. This shows that the All Weather Portfolio is doing precisely what it is intended to do: weather through all economic conditions.


Should you consider an All Weather Portfolio? | The Globetrotting Investor | Value Investing | Stock Analysis
Source: PortfolioVisualizer.com

In addition, the All Weather Portfolio is a simple buy-and-hold investment strategy that is easy to implement yet achieves diversification.


Cons of the All Weather Portfolio


Of course, the All Weather Portfolio has its limitation. Looking back at the graph above, you can see that the portfolio underperforms during bull markets. As a defensive portfolio with only a 30% stock allocation, it has less than stellar returns during economic growth.


The All Weather Portfolio also has a high allocation to bonds. This means that investors who invest in low-interest rate bonds will be impacted by the rise in the cost of living from inflation. The value of the income deteriorates from inflation.


Is an All Weather Portfolio right for you?


To answer this question, here are some pointers for you to consider:

  • Always consider your risk appetite, the timeline for investing and your financial goals. If you are young and are a risk taker, then having a portfolio of bonds may not be desirable.

  • Although the All Weather portfolio can ride out market turmoil, you need to be contented that it lags in performance when compared to other investing approaches. This means that the rate of return may not even beat the rate of inflation.

  • Lastly, past performance is not an indication of future performance. So even though the All Weather portfolio has historically weathered storms, it may not be that successful in the future.


What about my portfolio? Is it similar to the All Weather Portfolio?


No. Based on my risk profile, life stage and financial objective, I would want to be more aggressive. Hence, my portfolio is an all-equity portfolio.

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