Ray Dalio All Weather Portfolio

The stock market is the maker of legends. Investors often do everything they can to follow in the footsteps of the investing greats like Warren Buffett, Carl Icahn, and Ray Dalio.

While many investment moguls and financial experts share tips and tricks to building wealth as an investor, some top-level investors go a step further by sharing details of their portfolios and even making those portfolios available to the average investor who might want to employ their strategies.

One such investment opportunity is known as the Ray Dalio All Weather Portfolio.

What Is the Ray Dalio All Weather Portfolio?

The All Weather Portfolio is a portfolio of investments designed by Dalio himself.

Ray Dalio is the billionaire founder of the hugely popular hedge fund Bridgewater Associates. With a net worth of more than $20 billion, he is one of the richest men to ever walk the earth, and one of the most widely-respected experts on Wall Street.

In fact, he has become a celebrity of sorts, with mainstream media sometimes pointing to him as the Steve Jobs of Wall Street.

The All Weather investment portfolio offers a heavily diversified group of investments that are chosen specifically to work together in order to turn a profit even in the face of bear markets and financial crises.

The All Weather Portfolio is an available-to-all investment that’s loosely based on the risk-parity All Weather Fund at Bridgewater Associates.

Although Dalio developed the portfolio, it was popularized by Tony Robbins in his book “Money: Master the Game: 7 Simple Steps to Financial Freedom,” which prominently features the concept of an investing strategy for all seasons.

Portfolio Asset Allocation

Ray Dalio’s All Weather Portfolio is designed to perform in even the riskiest of times for investors, including economic downturns and bear markets.

The diversified list of investments features a heavy allocation to intermediate and long-term bonds issued by the United States Treasury, only about 30% of the portfolio invested in stocks, with commodities sprinkled in to add further stability.

Due to the low-risk focus of the portfolio, there are no short-term assets included in the portfolio.

The portfolio consists of the following:

  • U.S. Stocks. U.S. stocks are the riskiest asset you’ll find in the portfolio, which takes up about 30% of its allocation.
  • Long-Term Treasury Bonds. The largest holdings in the portfolio (40%) are long-term Treasury debt instruments like bonds and notes, further outlining the focus on risk management within the portfolio.
  • Intermediate-Term Treasury Bonds. Another 15% of the portfolio is invested in the U.S. Treasury with intermediate-term debt instruments.
  • Diversified Commodities. 7.5% of the portfolio is invested in a diversified list of commodities like oil, corn, and precious metals.
  • Gold. Finally, the last 7.5% of the portfolio is invested in gold, providing further stability, as gold is a compelling store of value during economic and market downturns.

The Investment Thesis Behind the Portfolio

The All Weather investment strategy was designed to provide exposure to growth with the smallest potential drawdowns, even in the harshest of market conditions. This is done by focusing the majority of the portfolio on low-risk assets across a wide range of asset classes.

When creating the portfolio. Dalio proposed that four key factors — inflation, deflation, rising economic growth, and declining economic activity — play significant roles in the movement of asset values in financial markets.

His thesis is that these four factors lead to four seasons of the U.S. economy: higher-than-expected inflation, lower-than-expected inflation, higher-than-expected growth, and lower-than-expected growth.

The portfolio was designed to perform well in all seasons, with less volatility than traditional investing models.

By practicing heavy diversification and investing the majority of the assets in the portfolio into low-risk asset classes, there’s minimum risk of declines.

On the other side of the coin, the 30% of the portfolio that’s invested in U.S. stocks provides investors exposure to growth in equities when economic and market conditions are positive.


How to Duplicate the Ray Dalio All Weather Portfolio

One option to invest in the portfolio is to simply do so by purchasing shares of the actual All Weather Fund at Bridgewater Associates. Unfortunately, the investment management firm caters to extremely wealthy investors, so most people won’t have access to the original fund directly.

Thankfully, it’s simple to build an All Weather portfolio of your own.

If you plan on keeping your investments domestic, simply invest in the following assets:

  • Vanguard Total Stock Market Index Fund ETF (VTI). The VTI index fund represents the U.S. stocks portion of the portfolio. It offers a highly diversified group of investments in U.S. securities, and it should represent about 30% of the portfolio’s allocation in a portfolio built around the All Weather strategy.
  • Vanguard Long-Term Treasury Index Fund ETF (VGLT). The All Weather portfolio invests 40% of assets in long-term U.S. Treasury debt securities. The VGLT exchange-traded fund (ETF) offers exposure to these assets.
  • Vanguard Intermediate-Term Treasury Index Fund ETF (VGIT). With 15% of the assets in the portfolio being allocated to intermediate-term Treasury debt instruments, the VGIT fund is a perfect fit to fill this portion of the portfolio.
  • iShares Gold Trust (IAU). To follow the All Weather strategy, 7.5% of the portfolio should be invested in gold. This investment provides further stability during tough economic conditions and bear markets, and the IAU ETF is the perfect fund to provide this exposure.
  • Invesco Optimum Yield ETF (PDBC). The PDBC fund gives investors diversified exposure to the commodities sector. As such, you’ll want to invest 7.5% of your assets in this fund to closely match Dalio’s portfolio.

Pro tip: You don’t have to do the work yourself. If you use M1 Finance, you can simply load the Ray Dalio All Weather Portfolio prebuilt pie to gain access to a curated allocation of securities that follows this strategy.

The All Weather Fund focuses its exposure on domestic U.S. securities. However, if you would like to diversify your stock holdings into international markets while following the principles of the All Weather strategy, you can do so by trading out the VTI holdings for the Vanguard Total World Stock ETF (VT). This ETF offers international diversification and was designed to track the top performers in the global market as a whole.


Keep Your Portfolio Balanced

The portfolio was designed to provide safety and growth through balance and diversification. Therefore, if you plan on following Dalio’s All Weather strategy, it’s best to rebalance your portfolio on a regular basis. Monthly rebalancing is best.

After all, different funds will outperform others in the portfolio depending on the seasons of the U.S. and global economies.

Rebalancing your portfolio when following this investment strategy is a relatively simple process. All you need to do is adjust the allocation of your portfolio in each asset class to keep it in line with the desired percentages.

For example, if you find that your VTI holdings have grown to represent 35% of your total portfolio’s value, you should take profit on some of your holdings to reduce it back to 30%. You can then spread those profits across other assets based on the allocation guide above.

The magic of this portfolio is the balance of risk and reward it provides. Allowing your portfolio to fall out of balance defeats the purpose of following this strategy in the first place.


Who Should Take Advantage of the All Weather Portfolio?

There’s no such thing as a one-size-fits-all approach to investing. Different strategies are designed to meet different financial goals. Investors who are best served by the Ray Dalio All Weather strategy include:

Risk-Averse Investors

The strategy gives a higher priority to the avoidance of risk than to the generation of maximal profits. As a result, this portfolio is best for those who are least comfortable with risk when making investment decisions.

Investors Nearing Retirement

Investors with a long time horizon have plenty of time to recover if something were to go wrong in their portfolio. So, these investors are generally better suited to taking larger risks with the potential of generating larger returns.

On the other hand, investors with a short time horizon, such as those nearing retirement or other major goals like putting a down payment on a home, should avoid excess market risk at all costs. After all, with little time to recover, significant losses in your portfolio could spell disaster.

Investors Looking for Reliable Income

The majority of the asset allocation in the All Weather portfolio is invested in intermediate- to long-term U.S. Treasury debt securities. These assets are income investments, generally providing fixed payments to their holders on an annual or semiannual basis.

If you’re looking for steady income through your investments, this portfolio is the way to go.


Pros and Cons of the All Weather Portfolio

No matter which portfolio strategy you choose to follow when you invest, there will be pros and cons associated with that decision. Here are the most significant pros and cons to consider before working to mirror Dalio’s All Weather vision.

All Weather Strategy Pros

The All Weather strategy has become an overwhelmingly popular one, especially among risk-averse investors. Some of the most significant benefits to taking advantage of this portfolio include:

1. A Solid Performer During Bear Markets

Bear markets are troubling times for investors. As stock prices take a dive, investors often scramble to find a safe store of value to put their investment dollars into in order to weather the storm.

Due to its heavy focus on U.S. Treasury debt instruments and commodities, the portfolio is known to produce a stellar performance during bear markets.

2. Income

Income is a major benefit to the All Weather strategy. After all, when you generate income through your investment activities, you can use that income as a supplement to help improve your quality of life or reinvest it to generate larger gains in the future.

You can’t knock regular payments provided through your investments.

3. Simple Diversification

Diversifying your investments is overwhelmingly important, as it protects you from significant losses should one of your investments take a dive.

The All Weather strategy takes this diversification to the next level. By purchasing just five ETFs, your portfolio will include a diverse list of stocks, bonds, and other securities that, when combined, work together to minimize potential risk while generating gains.

All Weather Strategy Cons

Although there are plenty of reasons to be excited about the All Weather format of investing, there are some drawbacks to consider before employing this strategy in your investment portfolio. Some of the most significant include:

1. Missed Bull Market Opportunities

While the All Weather portfolio seems built to perform well in all markets, when you dive into the underlying assets held within the portfolio, you find what looks to be a bear market investment strategy.

In a bull market, growth stocks are growing and momentum is on your side. However, with 70% of assets in the All Weather portfolio being invested in fixed-income debt securities and commodities, only 30% of your portfolio will have exposure to the strong profitability experienced in the U.S. equities market during good economic times.

2. Underperformance Compared to Benchmarks

When investing in this portfolio, you can’t expect to generate astonishing annual returns. Designed for the highly risk-averse investor, the portfolio puts more importance on the avoidance of risk than the generation of meaningful returns.

The portfolio’s annual returns will generally end up between 5% and 6%. While that’s better than money market accounts and most bonds, it’s significantly lower than the long-term average return of the S&P 500, which sits at around 10%.

3. Lack of Control

When investing in this portfolio, whether you invest in the All Weather Fund itself or build your own portfolio of ETFs, your investment dollars are managed for you by the fund providers you work with.

Sure, that takes the research and guesswork out of your hands, but it also lessens your control over what you invest in.

Moreover, when investing through funds, you hand your voting rights associated with the shares your investment dollars are used to purchase to your fund manager, meaning you’ll have no say in the direction of any company you’re invested in.


Final Word

There’s no discounting the fact that Ray Dalio is a genius. He has a history of making wise investment decisions, which has resulted in him becoming one of the richest people on Earth. It’s not surprising many investors want to follow in his footsteps.

However, the All Weather strategy is one that’s designed for a specific type of investment, and it shouldn’t be considered as the best option for everyone. It’s focused on reducing risk rather than generating market-leading profits.

Sure, balancing risk is important, but if you’re young and nowhere near the end of your investment’s time horizon, there’s no need to be so focused on risk at the expense of growth and compounding returns.

On the other hand, if you’re nearing the end of your investments’ time horizon or you’re significantly turned off by risk, this profile may be the perfect fit for you.

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