The All Weather Portfolio

Ray Dalio’s top tip for the individual investor

Jamie Murray
Jul 10 · 6 min read

With a top heavy stock market and talk of recession on the horizon, investors are naturally looking for ways to protect their portfolios should tougher times come knocking. What if there was a way to structure your investments in a way that could generate respectable long term returns no matter the weather? Well Ray Dalio, legendary CEO of Bridgewater Associates says there is, here’s his All Weather Portfolio.

In his 2015 epic, Tony Robbins dives deep into strategies for the everyday investor to secure a financial future that is bright and well defended. The back half of the book is a series of interviews with financial heavy weights, one of which is Ray Dalio.

I’ve been fascinated with both Dalio and the phenomenon that is his hedge fund for a number of years now, so when I got a copy of Robbins’ “Money Master The Game” I locked myself away and devoured it. I don’t want to plagiarise the book here, so if you’re interested in the detail and are a keen reader (the book is some 600 pages) I recommend picking it up.

In the interview Robbins sits with Dalio for a number of hours and manages to get him to spill the beans on a strategy that he’s been implementing at Bridgewater for a number of years and believes could benefit the everyday investor — particularly if left alone to do its thing over the long term.

You’ll need to keep an eye on it of course and rebalance the portfolio on an annual basis, but the whole point here is that actively moving in and out of investments is what tends to kill the everyday investor.

Your average fund manger is pretty poor at market timing, so given how bad we are likely to be, along with the higher rate of retail commissions, the less tinkering we do to our portfolios the better.

Dalio’s philosophy on the world is one of risk, if you read his book “Principles” it becomes clear that being blindsided by risk early in his career led him to drastically rethink his approach, and ultimately come up with strategies like the All Weather Portfolio.

Most people (particularly those that are financially less educated) are concerned mainly with maximising return. Its understandable, and if you are like me and came to the world of investing late in life, you want to get as much bang for your buck as possible. Dalio advises otherwise.

He is concerned with minimising risk. The whole point of this portfolio is that it reduces equity risk significantly more than traditional investment advice. I personally find this interesting, as given the rise in popularity of investing in Index Funds, any long term headwind to equities would cause the recent exciting returns of those funds to diminish significantly.

Often times the purpose of investing gets muddled in peoples minds as they hear of the amazing returns of whatever asset class is in a bull market at the time or by the outliers such as the stratospheric rise and fall of Bitcoin during 2017. People seem to misunderstand the idea of tucking money away in a fairly safe way to overcome inflation and grow for use in later life, with the short term gains of volatile speculation.

Now, to be clear, I’m a big fan of long term steady growth and short term speculation. I’m both a retail futures trader and a longer term investor. The two games have different challenges and I enjoy them both. I just happen to be of the mindset that investments (and by investments I mean the long term accumulation and return on capital) are where you want to really try and mitigate risk, not shoot for stellar returns.

So what exactly is in the portfolio Dalio describes? Well, just before we get to that it’s important I think to mention a few things. Firstly, whilst the sectors he describes for the everyday investor are easily accessible, we are probably accessing them at significantly poorer rates and through more generic investments such as ETF’s, where as Dalio and his Pure Alpha Fund are probably accessing much more specific investments within each sector, and much more complex investment vehicles to rebalance returns.

These specific differences in the make up of an individual’s portfolio over a fund’s, will likely affect results. That said, I believe what he says is of benefit to everyday investors, and what he suggests is easily achievable as a general plan for individuals.

The strategy is pretty basic. It’s designed to do well in times of growth and in times of economic stress. This portfolio allocation performs well over history, and significantly better over most financial crises than both traditionally weighted portfolios, and any attempt I’d be able to achieve to try and time market swings.

So here it is….

The All Weather Portfolio

Stocks: 30%

Long Term Bonds: 40%

Intermediate Bonds: 15%

Gold: 7.5%

Commodities: 7.5%

Thats it.

I came to the investment game late. I left the military without much in the way of a pension and I’ve spent the first four years of my civilian career trying to make up for it. To that end my pension portfolio is mostly equities. This was a deliberate decision to try and make the best of a bull market. I did so on the premise that should we see a correction within the next five years or so, I’d have enough time till retirement to see it recover.

Whilst this premise is true, I’m not sure I actually have the risk tolerance I thought I had back then. Now, the more I read and the more I understand about what could happen to global economic growth, I start to wonder if now is the time to move to a portfolio such as this in order to try and limit risk, rather than increase returns.

Despite having a significant period of time before retirement, I’m not sure I really do have the financial muscle to sit through significant draw downs at a time where they are well predicted. Obviously timing here is important — so the question becomes am I willing to miss out on any potential up side of what remains of this bull run in equities, in order to protect the portfolio in the long term from potential down turns?

Photo by Markus Spiske on Unsplash

I’m obviously not a professional financial advisor, so I would never want to suggest people take any particular course of action. I happen to like the philosophy of this allocation, and believe in taking charge of our own investment future and allocating them in line with our own tolerances for risk. I spent too long in the dark about finance, investing and money and love it when I find out about something like this that comes from a brilliant mind and can potentially benefit the everyday investor.

If nothing else, it’s an interesting take on traditional investment advice, and gives food for thought as we start to think about sandbagging for any future financial flood.

If this article was helpful, and if you’re interested in hearing more — heres a link to the genesis of the strategy from the horses mouth, and for the record I have no association to any party mentioned in this article — I should be so lucky!

the all weather story — Bridgewater Associateshttps://www.bridgewater.com/resources/all-weather-story.pdf


Understanding Money

Finding clarity on money, finance and wealth

Jamie Murray

Written by

Freelance Finance Writer & Blogger www.jamiecmurray.com Retail Futures Trader & Rescue Pilot. I love to fly, write and trade financial markets.

Understanding Money

Finding clarity on money, finance and wealth

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