Billionaire Ray Dalio’s All Weather Portfolio

I first learned about the “All Weather Portfolio” when I was reading Tony Robbins’ book – MONEY Master the Game: 7 Simple Steps to Financial Freedom. In this book, Robbins introduced everyone to Ray Dalio, the billionaire hedge fund manager, who formally presented the concept of “All Weather Portfolio”. Ray Dalio (Net Worth: $18.4 billion) developed this strategy in the 1970s, and his goal was to weigh portfolio holdings according to their contributed risks. Dalio understood that asset allocation does not translate directly to risk allocation. In other words, you could have an asset allocation of 50% bonds and 50% stocks, however, that does not mean that your portfolio is exposed to 50% of risk from bonds and 50% of risk from stocks; that 50% of stock holdings could potentially bring 90% of risk to your portfolio, and that 50% of bonds could potentially expose you to 10% of total risk. The idea behind the All Weather Portfolio is to minimize the risk exposure and conserve your capital at all times. According to Ray Dalio, the portfolio allocations for a truly balanced portfolio would look like this:

  • 40% Long-Term US bonds (10 years+) When interest rates are low or falling, long term bonds will produce higher total returns. So, during a downturn (when rates are falling), this asset allocation will be outperforming.
  • 30% US Stocks You need to have the American Capitalism in your portfolio. When the market is trending up, you will produce higher total returns. So, during a bull market (when economy is prospering), this asset allocation will be outperforming. Ideally, you would want to invest in S&P 500 or Dow Jones Industrial Average (DJIA) index fund.
  • 15% Intermediate-Term US Bonds (2 years – 10 years) – The interest rate risk on medium-term bonds is lower than that on long-term bonds, and the interest payments on medium-term bonds is greater than that on short-term bonds. Long term and medium-term bonds provide a counterbalance to the inflationary commodities, gold (precious metals), and stocks.
  • 7.5% Gold – Gold is an important part of the portfolio because gold appreciates in price when paper assets such as stocks and bonds decline. Even though the price of gold can be volatile in the short term, it has maintained its value over a longer time frame. Lastly, gold is a great hedge against inflation. While the bonds don’t protect you from inflation, gold does that job for you.
  • 7.5% Commodities – Commodities are natural resources that are sold and traded. Commodities ranges from corn to orange juice to crude oil. Similar to gold, commodities provide an excellent hedge against inflation. In other words, commodity prices pick up when inflation rises. Commodities also act as a hedge against event risk. Lastly, commodities create a chance to get very high returns if the timing of your investment is correct.

The “All Weather Portfolio” approach has been a proficient and low volatility approach to investing. Below is the graph that shows All Weather Portfolio’s performance through the Tech Bubble Crash and the Housing Market Crash in comparison to other investment strategies.

All Weather

Hope you learned a little and found this blog post helpful. We talked Ray Dalio’s All Weather Portfolio investment strategy, which focuses on risk parity rather than asset allocation. As always, you can sign up for our mailing list here.  Like us on our Facebook page here. Thank you!

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Superior North LLC’s content is for educational purposes only. The calculators, videos, recommendations, and general investment ideas are not to be actioned with real money. Contact a professional and certified financial advisor before making any financial decisions.

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