Ray Dalio’s All-Weather Portfolio Performance

Ray Dalio’s All-Weather Portfolio Performance – Analyzing the Returns

Ray Dalio’s All-Weather Portfolio was constructed to stand the test of time, no matter the investing climate – be it inflation, deflation, or stagflation. How did the portfolio perform during Covid-19, a period that witnessed enormous volatility?

Ray Dalio’s All-Weather Portfolio performed very well during Covid-19. While the stock market dropped 30%, the All-Weather Portfolio only dropped 6%!

If you a want a more comprehensive and detailed article about the All-Weather Portfolio, we recommend this link:

What is The All Weather Portfolio?

Maggiuli’s blog post is based on the “All Weather Portfolio” developed by Ray Dalio and his firm Bridgewater Associates, one of the biggest hedge funds in the world. Dalio’s firm has spent considerable time developing a portfolio that does well both in times of inflation and deflation (any kind of market conditions).

Because most current investors have never witnessed a market where interest rates have gone up, as a matter of fact, rates have been falling since the early 1980s, it makes sense to have a long-term portfolio that can sustain all market conditions and keep your money safe.

Most investors have long forgotten the stagflation period of the 1970s where stocks produced negative real returns, in addition to the relatively recent bear market of the 2000s where the dust from the dot com bubble required lots of time to settle. Bear markets are inevitable in long-term investing. We all fall prone to the recency bias and quickly forget the past. Right now the interest rate risk might seem low, but economic conditions can change on a dime.

Those relying on investment income (FIRE) might take notice of this chart by Nick Maggiulli in a blogpost called The Definitive Guide to the All Weather Portfolio:

How Did Ray Dalio's The All Weather Portfolio Perform During Covid-19?
Both the 1970s and 2000s produced negative real returns.

Stocks are not a sure thing if you rely on them to cover your living expenses. If you want to retire early, you better make sure you can withstand at least 10 years of mediocre returns. I recently wrote about why I expect lower returns over the next decade, and why it makes sense to diversify. Your personal finances are important and it pays off to include a margin of safety.

How do I make an All Weather Portfolio?

The aim of Bridgewater’s All Weather Portfolio is to use diversification as a tool to smooth returns and lower drawdowns. The asset classes don’t move in perfect tandem, and thus diversification can help you lower drawdowns and sleep well at night. Ray Dalio’s Bridgewater Associates composed the portfolio like this:

  • 55% bonds
  • 30% US stocks (US stocks are about 50% of world market capitalization)
  • 15% hard assets and commodities

Nick Maggiulli suggests these ETFs to replicate Bridgewater’s portfolio:

  • 40% TLT (long-term Treasuries)
  • 30% SPY (US stocks, S&P 500)
  • 15% IEI (intermediate term U.S. Bonds)
  • 7.5% GLD (gold)
  • 7.5% DBC (commodities, commodity index tracking fund)

I guess every broker offers these ETF’s and thus you can easily compose this portfolio and rebalance whenever you want. You can of course change some of these components yourself but be sure you know what you are doing.

Pros and cons:

There is no free lunch in the stock market, and lower variability comes at a cost: over the long run, the All Weather Portfolio will most likely underperform both stocks and 60/40 (stock/bonds) as can be seen from the graph above. This means that the All Weather Portfolio is not for everyone. Especially if you are young, for example in your 20’s, it would make more sense to be more aggressive (invest more in stocks) as you have time on your side.

How is the All Weather Portfolio doing?

The portfolio has continued to perform well in 2020. The All Weather Portfolio vs the S&P 500 has a clear winner:

All Weather portfolio 2020
The All Weather Portfolio performed very well during 2020 and Covid-19. The blue line is the portfolio, the pink line is the S&P 500. Source: My own calculations.

The graph above assumes 100 000 invested at the closing prices of the first trading day of 2020 (dividends reinvested). While a 100% allocation to S&P 500 suffered a 33% drawdown, the All Weather Portfolio only had a very marginal 6% drawdown. This is a huge difference! As of writing, 11th of August 2020, the portfolio has gained 13.3% while S&P 500 “only” 4.4%.

Clearly, Ray Dalio’s All-Weather Portfolio still performs well, but that is of course no guarantee it will in the future.


– Why is diversification important in constructing the All Weather Portfolio?

Diversification is a key element in the All Weather Portfolio to smooth returns and lower drawdowns. The portfolio includes different asset classes that do not move in perfect tandem, reducing volatility and providing a safety net.

– How can I create an All Weather Portfolio?

To create an All Weather Portfolio, you can use suggested ETFs and allocate percentages according to the portfolio’s composition. It’s advisable to understand the components or seek professional advice when making adjustments.

– Why might the All Weather Portfolio underperform stocks and 60/40 portfolios over the long run?

The lower variability and smoother returns of the All Weather Portfolio come at a cost, and it may underperform more aggressive stock-based portfolios like 60/40 in the long run.

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