Understanding How All-Weather Portfolios Work

An all-weather portfolio is a diversified investment strategy designed to reduce reliance on any one economic outcome. Instead of concentrating heavily in stocks, it spreads money across assets such as equities, bonds, gold and commodities that may respond differently to economic growth, recession, inflation and deflation. The approach is associated with Bridgewater founder Ray Dalio and the broader idea of balancing portfolio risks across changing economic environments. For individual investors, a simplified version commonly uses a mix of 30% stocks, 55% bonds and 15% gold and commodities.

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What Is an All-Weather Portfolio?

An all-weather portfolio is a portfolio that’s built to do well, regardless of changing market conditions. The concept was developed by Dalio, a billionaire investor and founder of Bridgewater Associates, the largest hedge fund in the world.

The premise is simple: Diversify investments in such a way that a portfolio can perform consistently during periods of economic growth as well as periods of economic stagnation. The all-weather portfolio follows a passive investing strategy, in that it doesn’t require investors to make any major asset allocation shifts if the market shifts due to factors like increasing volatility or rising inflation.

Instead, Dalio designed the all-weather portfolio to allow investors to realize stable returns throughout a changing market environment. Specifically, this portfolio strategy is designed to help investors ride out four specific types of events:

• Inflationary periods marked by rising prices
• Deflationary periods marked by falling prices
• Bull market periods when the economy is growing
• Bear market periods when economic growth begins to slow down

Dalio’s view is that surprises are what drive price movements in the market. The all-weather portfolio was developed to offer investors insulation from those surprises.

All-Weather vs. All Seasons Portfolio: What’s the Difference?

The terms “All Weather” and “All Seasons” are often used interchangeably, but they do not refer to exactly the same portfolio. Bridgewater Associates developed the original All Weather strategy as a risk-balanced approach designed to hold up across different combinations of economic growth and inflation. ¹ The familiar 30% stocks, 40% long-term bonds, 15% intermediate-term bonds, 7.5% gold and 7.5% commodities allocation is a simplified version known as the All Seasons portfolio.

Tony Robbins popularized the All Seasons portfolio after discussing asset allocation with Ray Dalio. It translates the broader All Weather philosophy into a fixed allocation that individual investors can more easily recreate without using the more complex portfolio construction techniques of Bridgewater’s institutional strategy.

Both approaches are based on the idea that investors cannot reliably predict which economic environment will come next. Rather than making large tactical shifts based on forecasts, they seek diversification across assets that can respond differently to changing growth and inflation.

For an individual investor following the five-part allocation described in this article, “All Seasons portfolio” is technically the more precise term, although “all-weather portfolio” is commonly used more broadly to describe this type of diversified strategy.

How an All-Weather Portfolio Works

The all-weather portfolio works based on certain expectations Dalio and his team had about the relationship between asset class performance and changing market environments. Specifically, they looked at whether different asset classes rise or fall, based on whether the economy is growing or shrinking and inflation is rising or falling.

This led them to develop an ideal asset allocation that would allow investors to benefit whether the market is moving up or down. Here’s how the all-weather portfolio allocation breaks down:

• 30% is invested in stocks
• 40% is held in long-term bonds
• 15% is held in intermediate-term bonds
• 7.5% is allocated to gold
• 7.5% is allocated to commodities

So why this particular mix? In theory, this is the asset allocation that should allow investors to continue realizing steady returns while minimizing losses, regardless of the market environment.

The all-weather portfolio takes a much different approach than age-based allocations, a three-fund portfolio or the old school 60/40 portfolio split. Instead of looking at age and life expectancy, sticking with just a few funds or choosing a simple percentage-based split, the all-weather portfolio is more nuanced.

So in theory, the stock portion of the portfolio should do well in bull markets when stock prices are rising. In a bull market that’s characterized by rising inflation, investors would be bolstered by their intermediate-term bond and commodities holdings. Equities and bonds not linked to inflation can also be a winner for investors during periods of falling prices.

How to Build an All-Weather Portfolio

Building an all-weather portfolio simply means choosing the right mix of mutual funds, index funds or ETFs. This is something you can do through an online brokerage account. Again, the target asset mix is:

• 30% stocks
• 55% U.S. bonds
• 15% hard assets (gold and commodities)

You might allocate 30% to a stock index fund like the Vanguard S&P 500 ETF (VOO) or the iShares Core S&P 500 ETF (IVV). This gives you exposure to all the stocks in the S&P 500.

Next, you could add an intermediate bond fund like iShares 3-7 Year Treasury Bond ETF (IEI) or the Schwab US Aggregate Bond ETF (SCHZ). You could also add a long-term bond fund like the Vanguard Long-Term Corporate Bond ETF (VCLT) or the T. Rowe Price Institutional Long Duration Credit Fund (RPLCX). 

The last 15% could be invested in a commodities fund like the Invesco DB Commodity Index Tracking Fund (DBC) or the SPDR Gold Shares Fund (GLD) to round things out.

Those are just examples of funds you could use to construct your all-weather portfolio. When choosing which funds to include, you’d want to consider the underlying makeup of each fund and what it owns, as well as the expense ratio you’ll pay. And of course, it makes sense to consider the fund’s risk profile and past performance as well.

Pros and Cons of All-Weather Portfolios

No investing strategy is 100% foolproof, and the all-weather portfolio is no exception. Its advantages include ease of implementation, lower maintenance costs and broad diversification, making it an accessible option for many investors.

However, it also comes with drawbacks, such as the potential for underperformance during strong bull markets, exposure to interest rate risk due to its heavy bond allocation, and vulnerability to inflation.

Advantages of an All-Weather Portfolio

• Easy to implement: Can be built using a few mutual funds or exchange-traded funds (ETFs), eliminating the need for picking individual stocks or bonds.
• Lower maintenance costs: As a passive investing strategy, it requires minimal trading, reducing commission fees.
• Lower expense ratios: Investing in index funds or ETFs typically results in lower management fees compared to actively managed mutual funds.
• Diversification: Allocates investments across stocks, bonds, commodities and gold, creating a balanced portfolio that helps manage risk over time.

Disadvantages of an All-Weather Portfolio

• Potential underperformance in strong bull markets: The limited stock allocation (typically 30%) may result in lower returns compared to portfolios with higher equity exposure.
• Interest rate risk: A significant bond allocation (around 55%) can be negatively impacted when interest rates rise, reducing bond prices.
• Inflation risk: Higher exposure to bonds may lead to diminished purchasing power if inflation rises and portfolio returns fail to keep pace.

Who Should Consider an All-Weather Portfolio?

Generally speaking, this type of portfolio may be better suited to investors who prefer a passive approach and want to avoid buying or selling at the wrong time. When investing biases kick in, it can be very easy to sell in a panic, which can result in losses. An all-weather portfolio effectively short-circuits that since you’re sticking with the same asset allocation over time.

On the other hand, you may not prefer the all-weather approach if you seek above-average growth. In that case, you may be better off leaning toward a more active investing strategy or at the very least, a portfolio that has a larger allocation to stocks.

Bottom Line

An all-weather portfolio is designed to spread risk across assets that may respond differently to growth, recession, inflation and deflation. A popular version for individual investors combines stocks, long- and intermediate-term bonds, gold and commodities rather than relying primarily on equities for returns. That diversification can reduce dependence on any one market environment, but it does not eliminate investment risk or guarantee positive returns. The relatively low stock allocation may also limit growth during strong equity markets, while the large bond allocation can be vulnerable when interest rates rise. Whether the strategy fits your portfolio depends on your time horizon, return goals, risk tolerance and willingness to maintain and rebalance the allocation.

Tips for Investing

• Consider talking to a financial advisor about the merits of an all-weather portfolio and whether it may be right for you. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• Use SmartAsset’s asset allocation calculator to understand your risk profile and what types of investments are right for your portfolio.
• Whether you choose an all-weather portfolio or something else, it’s important to consider your personal risk tolerance, timeline for investing and overall goals. Rebalancing and tax-loss harvesting are also important for managing investments held in a taxable brokerage account. Portfolio rebalancing means adjusting your asset allocation periodically to ensure that it’s still aligned with your goals and risk appetite. Tax-loss harvesting involves selling stocks at a loss to offset capital gains. Both can be done inside a brokerage account, though either one may be done for you automatically if you’re investing through a robo-advisor.

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