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Ray Dalio All Weather Portfolio


Ray Dalio All Weather Portfolio



Ray Dalio All Weather Portfolio



Ray Dalio All Weather Portfolio




What is the All Weather Portfolio and Who is Ray Dalio?

First, we’ll take a brief look at what this portfolio is comprised of, and why. The All Weather Portfolio is an available-to-the-masses portfolio modeled somewhat after the risk-parity-based All Weather Fund from the famous hedge fund Bridgewater Associates. The portfolio idea was created by the legendary Ray Dalio, founder of Bridgewater, and was then popularized by Tony Robbins. Dalio has become almost like a god in the world of finance and investing, and rightfully so. I would highly recommend his bestselling book Principles, as well as his more recent book Big Debt Crises.

Note that the All Weather Portfolio as it is prescribed is not based on true risk parity. It is simply the product of an interview between Tony Robbins and Ray Dalio in which Dalio suggested that these weightings, without leverage, would be suitable and easy to manage for the average investor. Dalio even suggested that these weightings “would not be exact or perfect.” I explore options for true risk parity below later on in this post.

As the name suggests, the All Weather Portfolio is designed to be able to “weather” any storm. It uses asset class diversification based on seasonality in the interest of limiting volatility and drawdowns. The holdings and the allocations thereof correspond to Dalio’s view on economic “seasons.” Dalio’s strategy and expertise are so pervasive that the phrase “all weather” is now used to describe other portfolios that behave like his in surviving any economic climate, e.g. “investing in an all weather portfolio.”

Dalio proposes that the following four things affect asset value:

  1. Inflation
  2. Deflation
  3. Rising economic growth.
  4. Declining economic growth.

Based on these, Dalio expects we can see 4 “seasons” of the economy:

  1. Higher than expected inflation.
  2. Lower than expected inflation.
  3. Higher than expected economic growth.
  4. Lower than expected economic growth.

Dalio chose asset classes that performed well in each of these different seasons, with the goal being diversification that allows for consistent growth and small drawdowns. To minimize volatility, the portfolio is mostly bonds, and only allocates 30% to stocks.

The All Weather Portfolio looks like this:

  • 30% US stocks
  • 40% long-term treasuries
  • 15% intermediate-term treasuries
  • 7.5% commodities, diversified
  • 7.5% gold

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Categories : Finance    Themes : Investing
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