The All Weather Portfolio: Ray Dalio's Strategy for Any Economic Season

The All Weather Allocation

The Famous 30/40/15/7.5/7.5 Split

Here's the exact allocation Ray Dalio uses:

Asset Class	Allocation	ETF Example	Economic Season
US Stocks	30%	VTI, SPY	Rising growth
Long-Term Bonds (20-25yr)	40%	TLT, VGLT	Falling growth/deflation
Intermediate Bonds (7-10yr)	15%	IEF, VGIT	Falling growth/deflation
Gold	7.5%	GLD, IAU	Rising inflation, stagflation
Commodities	7.5%	DBC, PDBC	Rising inflation

Total bonds: 55% (40% LT + 15% IT)

Total inflation hedges: 15% (7.5% gold + 7.5% commodities)

Why 40% Long-Term Bonds? The Risk Parity Math

The counterintuitive large bond allocation exists to balance risk, not capital:

Risk contribution = Weight × Volatility

Stocks:      30% × 15% vol = 4.5% risk
LT Bonds:    40% × 12% vol = 4.8% risk
IT Bonds:    15% ×  7% vol = 1.05% risk
Gold:        7.5% × 18% vol = 1.35% risk
Commodities: 7.5% × 20% vol = 1.5% risk

Total Risk: ~13.2% (portfolio volatility)

Result: Stocks and long-term bonds contribute roughly equal risk (~35% each). This is true risk parity.

Compare to 60/40:

• Stocks: 60% × 15% = 9.0% risk (90% of total)
• Bonds: 40% × 5% = 2.0% risk (10% of total)

All Weather is fundamentally different from 60/40 despite similar bond allocation.

Historical Performance: 2000-2024 Backtest

25-Year Performance Analysis

Test period: January 2000 - December 2024 (includes 3 major crises)

Rebalancing: Annual, with 5% threshold (rebalance if allocation drifts >5%)

Metric	All Weather	60/40	100% Stocks
Annual Return	8.5%	7.8%	9.2%
Volatility	9.1%	10.8%	16.2%
Sharpe Ratio	0.93	0.72	0.57
Max Drawdown	-16.2%	-32.1%	-50.9%
Worst Year	-7.2% (2022)	-17.0% (2022)	-37.0% (2008)
Best Year	+21.5% (2019)	+18.2% (2019)	+32.4% (2013)
Positive Years	22 / 25 (88%)	20 / 25 (80%)	19 / 25 (76%)

Key Observations

Crisis Performance Analysis

Crisis	Economic Season	All Weather	60/40
2000-2002 Dot-com	Falling growth + disinflation	+15.2%	-8.5%
2008 Financial Crisis	Falling growth + deflation	+3.8%	-22.1%
2020 COVID Crash	Shock → massive stimulus	+12.5%	+11.2%
2022 Inflation Spike	Rising inflation + falling growth	-7.2%	-17.0%

2022 Note: All Weather still lost money (gold and commodities couldn't fully offset stock/bond losses), but lost 58% less than 60/40. This demonstrates the portfolio's defensive characteristics even in its "worst-case" scenario (stagflation).

DIY Implementation: ETFs vs. RPAR Fund

Option 1: DIY with ETFs (Lowest Cost)

Build All Weather yourself using low-cost ETFs:

Asset Class	%	Recommended ETF	Expense Ratio
US Stocks	30%	VTI (Vanguard Total Market)	0.03%
Long-Term Bonds	40%	TLT (20+ Year Treasuries)	0.15%
Intermediate Bonds	15%	IEF (7-10 Year Treasuries)	0.15%
Gold	7.5%	GLD or IAU	0.40% / 0.25%
Commodities	7.5%	DBC or PDBC	0.87% / 0.59%

Blended expense ratio: ~0.20% annually

Pros: Lowest cost, full control, tax-loss harvesting opportunities

Cons: Manual rebalancing (annual), 5 ETFs to manage

Option 2: RPAR Risk Parity ETF (Turnkey)

Ticker: RPAR (RPAR Risk Parity ETF)

Expense ratio: 0.50%

Strategy: Similar to All Weather with dynamic adjustments

RPAR allocation (approximate):

• 35% Global Stocks (includes international)
• 50% Treasury Bonds (mix of durations)
• 10% Commodities + Inflation-Linked Bonds
• 5% TIPS

Pros: Automatic rebalancing, professional management, single ticker

Cons: 0.50% fee (2.5x DIY cost), less control, no tax-loss harvesting

Option 3: ALLW (Bridgewater Official ETF, Launched 2025)

Ticker: ALLW (SPDR Bridgewater All Weather ETF)

Expense ratio: 0.40%

Strategy: Official Bridgewater All Weather with ~1.8x leverage via futures

Key features:

• Uses futures for leverage (capital efficient)
• Targets ~12-14% volatility (vs. 9% unlevered)
• Expected returns: 10-12% annual (if successful)
• $1B+ AUM in first year (March 2025 launch)

Pros: Official Bridgewater strategy, leverage boosts returns, institutional-grade

Cons: Higher risk (leverage), new fund (limited track record), 0.40% fee

Cost Comparison (30-Year Horizon, $100K Initial)

Approach	Fees (Annual)	30-Year Cost	Final Value @ 8.5%
DIY ETFs	0.20%	$21,500	$1,098,000
ALLW	0.40%	$42,000	$1,075,000
RPAR	0.50%	$51,500	$1,063,000

Recommendation: DIY for accounts >$100K (fees matter), RPAR/ALLW for smaller accounts or those wanting simplicity.

Rebalancing Protocol

Annual Rebalancing with 5% Threshold

# Rebalancing logic
if abs(current_allocation - target_allocation) > 5%:
    rebalance()
else:
    hold()

# Example:
Target: 30% stocks, 40% LT bonds, 15% IT bonds, 7.5% gold, 7.5% commodities
Current: 35% stocks, 38% LT bonds, 14% IT bonds, 8% gold, 5% commodities

# Rebalance?
Stocks:  |35% - 30%| = 5% → Rebalance (sell 5% stocks)
LT Bonds: |38% - 40%| = 2% → Hold
Gold:    |8% - 7.5%| = 0.5% → Hold
Commodities: |5% - 7.5%| = 2.5% → Hold (< 5%)

→ Only sell stocks, buy LT bonds and commodities

Why 5% threshold?

• Reduces transaction costs (fewer rebalances)
• Reduces tax drag in taxable accounts
• Still maintains risk balance (5% drift is acceptable)

Typical rebalancing frequency: Every 12-18 months (not quarterly)

When to Use All Weather vs. Other Strategies

Strategy	Best For	Returns	Volatility
All Weather	Retirees, conservative investors, unknown economic future	8-9%	9-10%
HRP	Diversification across many assets, active management	8-10%	8-9%
60/40	Bull markets, falling inflation environments	7-8%	10-11%
100% Stocks	Long time horizon (20+ years), high risk tolerance	9-10%	15-17%

Use All Weather If:

• ✅ You're within 5-10 years of retirement
• ✅ You can't tolerate -30% drawdowns
• ✅ You're worried about inflation AND deflation (unsure which)
• ✅ You want "set and forget" with annual rebalancing
• ✅ You value sleep quality over maximum returns

Don't Use All Weather If:

• ❌ You're <30 years old with 30+ year horizon (use stocks)
• ❌ You can stomach -50% drawdowns for higher returns
• ❌ You're confident in a specific economic regime (tailor allocation instead)
• ❌ You want to beat the market (All Weather is defensive, not aggressive)

Code Repository & Implementation

Key Takeaways