The average investor has never heard of the All Weather portfolio until Tony Robbins released the book, “Money, Master the Game: 7 Simple Steps to Financial Freedom”. An all-weather portfolio is a cross-asset portfolio based on the principle that an investment portfolio should provide stable returns, regardless of the economic environment. Ray Dalio created what is known as the All Weather Portfolio, which contains the exact asset allocation you need to make money in any kind of economy. Let me first make a few caveats. The All Weather Portfolio reportedly saw a loss of only 3.93% (I back test this later in the post). The only thing that you can do is to be prepared for it. That 1% is small in the short run, but can add up over very long time frames. In fact it can actually make money. The All Seasons portfolio was popularized by Tony Robbins in his book MONEY Master the Game: 7 Simple Steps to Financial Freedom. Maybe you want to choose a total U.S. stock fund or a global stock fund over just the S&P 500. When back-tested during the Great Depression, the All Weather Portfolio was shown to have lost just 20.55% while the S&P lost 64.4%. However, when compared to the S&P 500’s return for that same period, it does not sound as good. They definitely didn’t know who Ray Dalio was. Because owning assets like gold and commodities ain’t easy. One example is the All Seasons Portfolio which Tony Robbins detailed in his book Money: Master the Game: 7 Simple Steps to Financial Freedom. All Weather portfolio has an annual return 0.82% lower than 60/40 portfolio but its volatility per year is 3.32% lower. If history is any guide, your All Weather Portfolio should provide far more consistent growth with less volatility than most other portfolios. Dalio has embraced this truth by creating a collection of assets that can provide stable returns in all economic environments. The strategy was and is passive; in other words, this was the best portfolio Ray and his close associates could build without any requirement to predict future conditions.”. During the 2008 market crash, the All Weather Portfolio lost only -3.93% versus the S&P 500’s -37%loss. In a backtest from 1984 through 2013, the All Weather portfolio had a remarkable annualized return of 9.7 percent, though lower than the 11.1 percent return on the S&P 500 Index over the same period. Just type in Steven in Google search and it is the second suggestion that pops up. Despite the great theoretical underpinnings of the All Weather Portfolio, has it performed as expected? Bridgewater manages over $150 billion in assets and is known for their analysis of economic cycles as one of the top global macro hedge funds on Earth. Bridgewater’s All Weather Portfolio, which adopts a risk parity approach, was founded in 1996 (although the firm itself dates further back to 1975). The Ray Dalio All Weather Portfolio is exposed for 30% on the Stock Market and for 15% on Commodities.. 7 Vanguard Funds to Build an All-Weather Portfolio Vanguard funds can help portfolios be simple, low-cost and diversified By Kent Thune , InvestorPlace Contributor Jun 8, … Tyler of portfoliocharts.com designed the Golden Butterfly and described it this way: At the bottom of the coronavirus crash the S&P 500 was down 33%. Now you can sit back and worry about all the non-investment things life throws at you. 3.65%. nothing beats value investing , Your email address will not be published. It had only four years of negative growth, with the largest loss of -3.9 percent in 2008. For … From this framework, Dalio and his colleagues set out to create a portfolio that would be indifferent to these kinds of economic surprises. If you hate losses in the short term, then the All Weather Portfolio might be right for you. It’s cheap and their customer service has proven helpful. I work in the hedge fund space (quant, not risk parity like All Weather, but I think I can speak for most strategies), so I hope I can provide some clarity. An investor who was only in stocks saw larger loses than a portfolio that also held bonds. The same goes for global bonds vs. U.S. bonds. Since all four economic environments do not occur with the same frequency (i.e. Full disclaimer. However, the All Weather Portfolio has been gaining traction ever since because of its simplicity and good performance. In fact, investors rarely stick to one strategy long enough to let the investments do their job. The all-weather portfolio is a biased sample, form fitted to have done well over recent decades. Or inversely, imagine you got so euphoric around 12/06 that you went all in on equities only to lose a substantial amount in a fast and painful downdraft. The four economic “seasons” that impact asset prices are: Stocks, bonds, gold, and commodities all behave different depending on each of the four seasons. If stability is more important than growth, then yes I think this isn’t a bad way to go. For pension fund investment managers the All-Weather portfolio is a better risk adjusted return relative to the investment risk. How has the All Weather Portfolio done in practice? All Right Reserved. The chart shows the growth of $10,000 invested in Ray Dalio All Weather Portfolio on 5 Jan 2010 and compares it to the S&P 500 index or another benchmark. Investors were placed on a risk-off mode as gold and long-term US treasuries saw their prices heading up while global equities have traded range-bound for the past year. It’s only been a few years, but bonds have been squashed While this is an oversimplification of how assets react during different economic regimes, it gets at the core idea behind the All Weather Portfolio. The All Weather Portfolio has more dependable real returns and less severe drawdowns than other traditional portfolios. As you can see, the All Weather Portfolio does a great job of riding out the storms. In a rising growth and inflation environment, stocks and commodities will perform well while gold and bonds will not. It is very easy to get caught up in the positives, especially if the recent performance of the strategy has been solid. That’s fine, as long as you have roughly 30% exposed to equities. I still like the idea of this portfolio for wealth preservation. Say you had $100,000 invested in 2008. In fact, people can do really dumb things because of emotions. To help with that analysis, here are the key pros and cons you should consider. While you don’t need Bridgewater’s sophistication to succeed as an investor, their insights from the All Weather Portfolio may be beneficial for how you manage your money. 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