What Is The All Weather Portfolio?

The All Weather Portfolio is an investment strategy developed by hedge fund manager Ray Dalio for his company Bridgewater Associates. The portfolio invests in equities, in medium and long-term US government bonds, as well as in gold and other commodities.

The basic idea of the All Weather Portfolio

The objective of the All Weather Portfolio is to generate a total return that is close to the return on an equity portfolio, but with significantly lower volatility (fluctuation margin). The past has proven that this is indeed possible (see below).

Classical investment portfolios often consist of a share of shares and a share of bonds. Since equities and bonds can rise or fall simultaneously over a certain period of time and a reduction in risk is usually accompanied by a lower expected return, Ray Dalio’s aim in developing the All Weather Portfolio was to achieve a stable return with low risk, regardless of whether

  • Inflation
  • Deflation
  • Economic growth
  • Economic stagnation or decline
  • is available.

Key Takeaways:

  • The All Weather Portfolio is an investment strategy developed by hedge fund manager Ray Dalio.
  • The goal is a stable return in all weather conditions.
  • The portfolio consists of stocks, bonds, gold and other commodities.
  • Backtests over the last 100 years have shown convincing results.

Asset Allocation – The portfolio breakdown of the All Weather Strategy

The All Weather Portfolio is composed as follows:

  • Long-term US government bonds: 40%.
  • Medium-term US government bonds: 15
  • Equities: 30 % of the shares
  • Raw materials:7.5 %
  • Gold: 7.5

Historical performance – Back testing of the All Weather portfolio

Today, every private investor can invest in stocks, bonds, gold and other commodities. ETFs can therefore be used for a back test of the last 20 years.

The All Weather Portfolio has also been subjected to back tests at various points, some of which go back much further.

The performance of the strategy was approximately 7-10 % per year, depending on the period selected.

Back test by Tony Robbins

The American bestselling author Tony Robbins has submitted the Allweather Portfolio to a team of analysts for a backtest for his book “Money”, which will be published in 2014. The results convinced Robbins so much that he calls the strategy the Holy Grail. As the most important advantages he mentions:

  • Very high returns
  • Very high security
  • Very low volatility

For the years 1974 – 2013, the Ray Dalio All Weather portfolio achieved an average annual return of 9.88%. In the 40 years there were only six loss years and the average loss was 1.47 %. In addition, two of the loss-making years were virtually plus/minus 0, so that there were actually only four loss-making years in the 40 years. The largest annual loss in these 40 years was 3.93 %.

The portfolio was also tested back to 1925. The results of the last 75 years as well as the last 85 years (as of 2013) were also convincing with similar results. Even during the Great Depression in the years after 1929, the Allweather Portfolio would have performed significantly better than the stock market.

Own backtest – Replication of the strategy with ETFs

Today, ETFs offer private investors the opportunity to invest cost-effectively in all asset classes. The All Weather Portfolio can be easily replicated with ETFs and can also be saved with ETF savings plans. At this point I would like to present my own backtest, for which I selected suitable ETFs and tested the strategy back to 2003.

ETFs used

When choosing ETFs, I deliberately keep it simple and have selected the largest and most liquid ETFs for the respective asset classes.

Equities (SPY)

In terms of stocks, we limit ourselves to US stocks and invest in the S&P 500 Index. For this purpose, we use the SPDR S&P 500 Trust, also known as “SPY”, due to its stock exchange abbreviation SPY. The S&P 500 is the most important stock index in the world and is considered the benchmark for the stock markets, especially (but not only) in the USA. The SPY is one of the largest, most liquid and first commercially successful ETFs and physically replicates the S&P 500 index through stock purchases.

long-term US government bonds (TLT)

For bonds, we also rely on the large and well-known bond ETFs. For long-term US government bonds, we use the ishares 20+ Year Treasury Bond ETF, known by its abbreviation “TLT”. This tracks the Barclays U.S. 20+ Year Treasury Bond Index by physically investing in US government bonds with a maturity of 20 years or more.

Medium-term US government bonds (IEF)

For medium-term US government bonds, we rely on the ishares 7-10 Year Treasury Bond ETF with the symbol IEF.

Gold (GLD)

The SPDR Gold Trust with the abbreviation GLD is the most popular and largest gold ETF and invests in physical gold. Private investors can therefore invest in gold at a low cost and with GLD have an instrument that follows the development of the gold price relatively closely.

Commodities (DJP)

The iPath Bloomberg Commodity Index Total Return ETN is a popular instrument for broadly diversified investments in commodities. For the backtest I used the DJP, but with an ETN like the DJCI, for example, the same index can be replicated at lower cost.

Risks of ETNs

At this point, the risk of swap-based ETFs or ETNs must be pointed out. Since products such as the USO (United States Oil Fund) are not suitable for long-term investments due to the constant roll-over losses, only ETNs remain. However, there is a certain residual risk with these, as ETNs are debt securities and a default risk cannot be excluded 100%.

Since only 7.5% of the portfolio is invested in commodities and a default is very unlikely, I personally consider the risk to be manageable, but I advise every investor to weigh up the risk himself. If necessary, the commodity share can be reduced or substituted somewhat.

Data and Rebalancing

The opening price on the first trading day of the year was used for the back test. The data was collected manually in an Excel sheet. The data source is stockcharts.com, as well as Yahoo Finance for reconciliation. A rebalancing was carried out on the first trading day of each year to restore the original portfolio weighting after price changes.

The distributions of equity and bond ETFs were not immediately reinvested for backtesting during the year.

As the DJP and GLD were not launched until 2006 and 2004 respectively, the prices for the first few years were calculated on the basis of reference markets (gold price, CRB index).

Performance All Weather Portfolio 2003 – 2020

Using the parameters and ETFs described above, the performance of the Allweather portfolio was tested and achieved the following performance from 2003 to mid-April 2020:

Performance of the individual asset classes (ETFs) 2003 – 2020

The following table shows the performance of the individual ETFs and the individual asset classes:

All Weather Portfolio vs S&P 500

From the perspective of an investor or a private investor, the comparison of a portfolio or strategy with a certain benchmark is usually an important quality factor. The so-called broad market is often used as a benchmark, which in turn is represented by a stock index (usually the S&P 500). In addition to absolute performance, other factors also play a role in the assessment of an investment strategy, such as

  • the maximum drawdown
  • the average drawdown
  • the average profit per year

Number of profit/loss years

Below you will find some revealing evaluations of the All Weather Portfolio compared to the S&P 500.

Hypothetical 100 k Portfolio

With the chart below we compare the All Weather portfolio with the S&P 500. If you had invested USD 100,000 in the All Weather portfolio at the beginning of 2003, it would have become USD 360,000 in April 2020. An investment in the S&P 500 (or the SPY) would have yielded a result of USD 441 000. You also realize that an investment in stocks alone is far more volatile and that the Ray Dalio All Weather portfolio generates relatively continuous returns. (Dividend payments for the year were reinvested here at the beginning of each year).

Advantages & disadvantages of the All Weather strategy

The Ray Dalio All Weather Portfolio is a compelling investment strategy that promises high returns with low risk (high CRV). Depending on the period selected, investments in equities performed on average several percentage points better. The strategy is therefore particularly suitable for conservative investors or for shorter periods, as a significant loss is relatively unlikely compared to equities.

If you have a long time horizon and have no problems with interim losses of up to 50%, you can probably expect higher returns overall with a “100% equities” investment.


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