Ray Dalio designed a portfolio asset allocation that is built to be able to weather economic storms, manage risk exposure, and create positive returns over the long term. It is designed not to just maximize gains but to also diversify risk and create steady returns through all market environments. Dalio calls it the All Weather Portfolio as it diversifies by holding multiple asset classes: bonds, commodities, and stocks. Tony Robbins first made this portfolio popular in his book MONEY: Master the Game where he interviews Ray Dalio. 

The All Weather Portfolio asset allocation:

  • 40% long-term bonds
  • 30% stocks
  • 15% intermediate-term bonds
  • 7.5% gold
  • 7.5% commodities

Ray Dalio chose these assets together to successfully go through different economic seasons and cycles. This investment mix and weighting is designed to perform well during deflation, inflation, bear markets, bull markets, and sideways markets. That is its goal and purpose, playing strong offense and defense through any market environment. It is meant for the purpose of both conserving and also growing capital over the long term. 

Some long term backtesting findings from the Tony Robbins book:

  • Tony Robbins said capital allocated to this All Weather Portfolio mix from 1984 through 2013 would have been profitable more than 86% of the time. The average loss of this portfolio was just under -2% with one of the losses was just just -.03%.
  • When back-tested during the Great Depression, the All Weather Portfolio was shown to have lost just 20.55% while the S&P lost 64.4%. That’s almost 60% better than the S&P.
  • The average loss from 1928 to 2013 for the S&P was -13.66%. The All Weather Portfolio? -3.65%.
  • In years when the S&P suffered some of its worst drops like 1973 and 2002, the All Weather Portfolio actually made money.
  • In the previous 10 years since the book was published it returned a +7.42% annual rate of return when compounded, and had a 5.56% standard deviation. [1]

The Ray Dalio All Weather Portfolio is considered medium risk and can be created by using five exchange traded funds.

  • 40% $TLT iShares 20+ Year Treasury ETF 
  • 30% $VTI Vanguard Total Stock Market ETF 
  • 15% $IEF iShares 7–10 Year Treasury ETF 
  • 7.5% $GLD SPDR Gold Shares ETF 
  • 7.5% $DBC PowerShares DB Commodity Index Tracking Fund

Here is the backtested performance of the ETF All Weather Portfolio from February 7th, 2006 through September 3rd, 2021. This is based on annual rebalancing of the ETFs through the duration of the time period. Both annual rebalancing and quarterly rebalancing outperformed buy and holding the portfolio with no rebalance. It is compared against the benchmark of the All World 60/40 equity/bond mix which is another popular diversified portfolio mix. The All Weather Portfolio overtook the performance of the 60/40 mix in 2008 and was never overtaken again. 

all weather portfolio

all weather portfolio

all weather portfolio

all weather portfolio
Backtest data courtesy of ETFreplay.com