Ray Dalio’s All Weather Portfolio (Backtest, Returns And Performance Analysis)
Ray Dalio’s All Weather Portfolio is a pretty well-known portfolio, and for good reasons, in our opinion. Ray Dalio and his team at Bridgewater Associates constructed the All Weather Portfolio to withstand every economic environment (and shocks) possible. What exactly is the All-Weather Portfolio? Which assets are included? How has it performed? What was the performance during the financial crisis in 2008/09, Covid-19, and the bear market of 2022? These are some of the questions we answer in this article. We backtest the All Weather Portfolio to gather the most important statistics about the strategy.
Ray Dalio’s All Weather Portfolio was constructed to stand the test of time, no matter the investing climate – be it inflation, deflation, or stagflation – and the portfolio consists of both stocks, bonds, and commodities. We backtest its performance to establish the historical facts.
The annual returns have been lower than for stocks, but the max drawdowns are substantially smaller. It’s a defensive portfolio. Both during the financial crisis in 2008/09, Covid-19 in 2020, and the bear market of 2022 it performed better than stocks.
We show you how you can construct an All-Weather Portfolio and how you can backtest it. Let’s get started:
Who is Ray Dalio?
Let’s start with a very brief introduction about Ray Dalio:
Ray Dalio is one of the most famous money managers on this planet. He founded the hedge fund Bridgewater Associates in 1975, and after a setback in the 1980s, he has managed to create an outstanding track record for his fund: 11.5 %. Considering the huge asset base, this result is really impressive.
As a result, Bridgewater Associates has attracted a lot of money from both private enterprises and public sovereign entities. Bridgewater Associates is currently the world’s biggest hedge fund, to our knowledge, with over 155 billion dollars under management.
Ray Dalio’s investment approach is mostly top-down and based on macro fundamentals, and the All-Weather Portfolio is a result of this: It’s all about asset classes – no stock pickings.
We don’t go into details about Ray Dalio in this article, but we recommend our separate article about Ray Dalio.
Now that you briefly know who Ray Dalio is, we go on to explain the All Weather Portfolio, the main purpose of this article:
What is the All Weather Portfolio?
What I’m trying to say is that for the average investor, what I would encourage them to do is to understand that there’s inflation and growth. It can go higher and lower and to have four different portfolios essentially that make up your entire portfolio that gets you balanced…..I think that the first thing is you should have a strategic asset allocation mix that assumes that you don’t know what the future is going to hold.
- Ray Dalio
As we have already mentioned in the introduction, Ray Dalio’s All Weather Portfolio was constructed to stand the test of time, no matter the investing climate – be it inflation, deflation, or stagflation. Because the portfolio is put together to perform well under ANY economic environment, it consists of many assets.
Why does the All Weather Portfolio consist of many asset classes?
It’s all about diversification and correlation. We have diversification to avoid being invested in just one asset class, not to put all our eggs in one basket, and to potentially have a low or no correlation between the asset classes. We have in a previous article explained the benefits of lowly correlated assets or strategies in a portfolio: