Do you want to create a portfolio that can withstand any adverse market conditions? Are you looking to reduce volatility and achieve consistent returns over time? If so, you might be interested in Ray Dalio's All Weather Portfolio. Developed by this billionaire investor, it’s a diversification strategy designed to be profitable in any economic climate. In this Hapi article, we explain what it is, how to build it, and the benefits of this portfolio.

Who Invented the All Weather Portfolio?

It was created by Ray Dalio, the founder of Bridgewater Associates, one of the largest hedge funds in the world, managing nearly $120 billion in assets. Dalio's career has been widely recognized and has revolutionized how global institutions approach investment.

Dalio got hooked on investing at the age of 12 when he started investing the money he earned working as a golf caddie. After studying finance and earning his MBA from Harvard, he started Bridgewater in his two-bedroom apartment in 1975. Over 45 years later, it has become one of the leading private companies in the United States.

He has been featured in TIME magazine as one of the 100 most influential people in the world and in Bloomberg’s Top 50. His book Principles: Life and Work has been a New York Times bestseller.

The All Weather Portfolio is a strategy for building a diversified portfolio that can deliver positive results in any economic condition, despite economic shocks. Specifically, for the stock market, it is expected to perform well in bull markets (when the market is rising) and bear markets (when the market is falling).

What Is the Logic Behind the All Weather Portfolio?

The core philosophy of this portfolio is diversification. This means building a portfolio with assets that are not perfectly correlated, meaning they move differently. The goal is to reduce the overall risk of the portfolio and generate stable returns.

For example, stocks and bonds are two asset classes that tend to be poorly correlated. When stocks underperform, bonds can do better, and vice versa.

Many investors forget that the period of high growth and low inflation we’ve experienced in the last decade (and even since the early 2000s) is the exception, not the rule. The All Weather Portfolio generally performs well in periods of high or low growth and high or low inflation.

How Is the All Weather Portfolio Composed?

Generally, the All Weather Portfolio consists of these asset classes: stocks, long-term bonds, medium-term bonds, commodities, emerging market bonds, currencies, and treasury bonds. The exact composition of the portfolio is constantly adjusted to reflect market conditions and maintain the portfolio’s balance.

Below is the portfolio structure and the assets that perform best in each economic scenario:

Economic Growth InflationHigh25%• Stocks• Cryptocurrencies• Emerging Market Bonds• Medium-Term Corporate Bonds25%• Commodities• Gold• Inflation-Adjusted Bonds• Real EstateLow25%• Treasury Bonds• Long-Term Bonds• Inflation-Adjusted Bonds25%• Stocks• Nominal Bonds• Cash• Currencies

Here’s an example for your portfolio, composed of ETFs representing these assets:

• 30% Stocks (SPY, VOO, or VTI)
• 40% Long-Term Bonds (TLT)
• 15% Commodities (GSG or GLD)
• 7.5% Emerging Market Bonds (EMB or PCY)
• 7.5% Currencies
• And the remainder in Treasury Bonds

Is It a Good Idea to Build an All Weather Portfolio?

The benefits of this portfolio are that it provides exposure to different asset classes, reducing portfolio risk and generating good, stable returns over the years. In fact, over the last 30 years, the All Weather Portfolio achieved a compound annual return of 7.39%.

It also tends to perform well during recessions and economic booms. Especially in bear markets, this portfolio often outperforms the S&P 500 index. This is particularly important in 2023, as economic conditions remain uncertain. There are many changing and risky factors in the economic and political landscape this year.

Due to rising interest rates, high inflation, and global logistics bottlenecks, the economy could enter a period of low economic growth. Likewise, it’s possible that measures taken by economic authorities will manage to restart growth.

Investing in a diversified All Weather Portfolio can help you achieve your financial goals, regardless of global economic conditions. The most important thing is to make informed decisions about your investment strategy and the platform you choose. Hapi is an app that lets you invest in stocks and cryptocurrencies easily from Latin America, with no commissions or minimum amounts. Getting started is easy—just click here.