In 2014, Tony Robbins introduced the world to the ‘All Weather’ portfolio as constructed by renowned hedge fund manager Ray Dalio. Also known as the ‘All Season’ strategy, Dalio proposed a mix of multiple asset classes that together can survive virtually any storm.
The ‘All Weather’ Portfolio Make-Up
The key components and weights of this strategy are the following:
- 30% in U.S. stocks
- 40% in Long-term U.S. Treasury Bonds
- 15% in Intermediate-Term U.S. Treasury Bonds
- 7.50% in Gold
- 7.50% in broad Commodity basket
The end result is a diverse group of inflationary and deflationary investments that that work to lower volatility and potentially enhance returns over the long-term.
Related: ETF Strategies for Long Term Portfolio Construction
Now at first glance, this asset allocation may seem somewhat recklessly overweight fixed-income. This is especially true when you consider that 40% of the portfolio is dedicated to long-term Treasuries with a duration of 20 years or more. That’s a whole lot of interest rate risk that would drag significantly on the portfolio in the event rates begin to meaningfully rise.
Yet on the flip side, it produces a sound counterbalance to the inflationary commodity, precious metals, and stock assets. In fact, the intermediate and long-term Treasury bond exposure is one of the reasons this portfolio model is having such a fantastic year.
Using exchange-traded funds as a proxy for the underlying structure of the All Weather portfolio is one of the best ways to examine its real-world performance.
The following list of funds can be used for investors who want to back-test or even directly invest in this strategy:
‘All Weather’ Portfolio ETFs
30% Vanguard Total Stock Market ETF (VTI) +7.21% YTD
40% iShares 20+ Year Treasury ETF (TLT) +15.96% YTD
15% iShares 7-10 Year Treasury ETF (IEF) +7.26% YTD
7.50% SPDR Gold Shares ETF (GLD) +25.71% YTD
7.50% PowerShares DB Commodity Index Tracking Fund (DBC) +9.81% YTD
Year-to-date total return through 9/26/16: +12.30%