BMT

The All-Weather Portfolio: Engineering Resilience for Every Economic Season

Dec 05, 2025 Code Authority: Team BMT
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The All-Weather Portfolio: Engineering Resilience for Every Economic Season

CORE INSIGHTS

  • The 4 Seasons: The economy has four states: Rising/Falling Inflation and Rising/Falling Growth. Most portfolios only work in Growth. All-Weather works in all four.
  • Risk Parity: Instead of allocating money equally, it allocates based on risk. Since stocks are volatile, you hold more bonds to balance the risk.
  • Inflation Armor: It dedicates 15% to Gold and Commodities, specifically to offset inflationary shocks that kill traditional 60/40 portfolios.

Ray Dalio’s All-Weather Portfolio removes the “forecasting” element from investing. By constructing a portfolio that has exposure to every possible economic environment, you accept lower maximum returns in exchange for survival during crises.

The Economic Matrix (Risk Balance)
  • Rising Growth: Stocks, Corporate Bonds.
  • Falling Growth: Nominal Bonds (Treasuries).
  • Rising Inflation: Commodities, Gold, TIPS.
  • Falling Inflation: Stocks, Nominal Bonds.

Strategy: Hold 25% risk exposure to each quadrant.

Visualizing the Allocation

*Figure 1: The Allocation. Heavy Fixed Income (Green) balances Equity Volatility (Blue).*

Strategic Action Steps

1
Rebalance Quarterly
This strategy relies on “selling high and buying low.” Because the assets are uncorrelated, they drift apart quickly. Rebalancing captures the premium.
2
Asset Location (#103)
Commodities (GSG) and Bonds (TLT) generate taxable income. Ideally, hold this entire portfolio in a Tax-Advantaged Account (IRA).
3
Stay the Course
In a bull market, you will underperform the S&P 500. Do not abandon the strategy. You are paying for insurance. The payoff comes when bubbles burst.

The Bottom Line: Who Should Choose What?

  • Choose All-Weather: Risk-averse investors, retirees, or anyone who believes the future is unpredictable.
  • Choose 100% Equity: Young accumulators (20s-30s) who want to maximize raw growth and can ignore crashes.

Frequently Asked Questions

What is the asset allocation of the All-Weather Portfolio?

30% Stocks (VTI), 40% Long-Term Treasuries (TLT), 15% Intermediate-Term Treasuries (IEI), 7.5% Gold (GLD), and 7.5% Commodities (GSG).

Why hold so many bonds?

Stocks are 3x more volatile than bonds. To achieve “Risk Parity,” you need more bonds to counterbalance the wild swings of equities.

Does it beat the S&P 500?

In a bull market, no. But it shines in risk-adjusted returns (Sharpe Ratio) and experiences much smaller drawdowns during crashes.

Related Reading (Master Pillars)

🛡️ The Boglehead Strategy (#120) 🛡️ Gold vs Bitcoin Guide (#68) 🛡️ Inflation Hedge Strategy (#119)
Disclaimer: This content is for informational purposes only. Commodity investing involves risk. Consult a professional.
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