All Weather Portfolio Pros and Cons | ETFs | Performance | Chart | Videos

The All Weather Portfolio is has performed well during certain times in the past. By the end of this post, however, you’ll know why the All Weather Portfolio would work so well for the extremely wealthy Dalio family and may not work so well for others. 

There are several pros and cons of the All Weather Portfolio. The pros are that it is low risk, easy to implement, low cost, and diversified. The cons with The All Weather Portfolio are that it underperforms during stock bull markets, has high interest rate risk exposure, has high inflation risk, and has subpar returns.   

Man over 50 with cash

In this article, I’ll expand on the All Weather Portfolio pros and cons, the portfolio ETFs and allocations, the performance, and a chart of the portfolio allocation which I created for you.

This popular buy and hold investment strategy was developed by hedge fund billionaire Ray Dalio, originally as a way for his family to invest.

Dalio was the founder of Bridgewater Associates and is a leader among investment professionals. You know I don’t follow the herd, so why would I listen to Ray Dalio? During the 2008 financial crisis, the White House called in Dalio for his advice on how to resolve the crisis. Not only this, Dalio predicted the financial crisis before it even happened.

In other words, he’s a pretty brilliant guy whose expertise I admire.

The All Weather Portfolio ETFs

This diverse portfolio invests in the following assets with ETF’s, or Exchange Traded Funds.

ETFs are index based funds that you can buy just like you buy stocks. Note the percent allocated to each asset class in The All Weather Portfolio and the ETF symbol below.

  • Large Cap US Stocks – VTI – 30%
  • 20 Year Treasury Bonds iShares – TLT – 40%
  • 3-7 Year Treasury Bonds iShares – IEI – 15%
  • Gold SPDR Gold Trust – GLD – 7.50%
  • iShares S&P GSCI Commodity Indexed Trust – GSG – 7.50%

You can see the allocation in the chart below.

All weather portfolio review image (donut chart)


Pros and Cons of the All Weather Portfolio

Every investment strategy has a mix of pros and cons. Let’s see what they are for The All Weather Portfolio.  

Pros of the All Weather Portfolio

There are more pros than cons for this well diversified investment strategy and here they are.

1. Low Risk Portfolio Structure

There is an extremely high probability the All Weather Portfolio won’t lose money overall. If this strategy does lose money, we have a bigger problem than our investments since it holds assets that are specifically known for their preference during “worst case scenarios”.

The reason the risk is so low with this portfolio is because of it’s high allocation into defensive assets that go up when stock go down or non-correlated investments. For example, treasury bonds almost always go up when stocks drop, and gold and other commodities often do too.

In the video below, I explain more about what gold has done in past bear markets.




2. Easy to Implement Investment Strategy

The All Weather Portfolio is a simple buy and hold investment strategy that’s easy to implement; you buy the ETFs and rebalance the ETFs every year back to the asset class percentages in the portfolio. This can be done easily inside your brokerage account. 

3. Low Cost Investment Strategy

It is unbelievably cheap to implement an ETF portfolio. ETF’s can be bought commission free at most brokerage firms. The costs of owning most ETF’s are also minimal with the exception of GSC. Unfortunately, GSG’s net expense ratio is high at 1.25%, but VTI is only .03%. 

4. Diversification in Defensive Investments

This diversification strategy is more advanced than a basic stock and Treasury bond portfolio that is popular these days. It’s even more sophisticated than popularly promoted portfolios that venture into just international stocks and bonds since it has a heavy focus on defensive investments that go up when stocks go down.

Such diversification may appeal to investors who especially want to manage risk from the stock market in their portfolios. 

5. It’s An All Weather Portfolio 

A full 70% of this portfolio is kept in defensive assets, including ETFs IEI, TLT, GLD, and GSG. Even VTI is not unusually high risk as far as stocks go. No, this is not typical cookie-cutter asset allocation. It’s for sophisticated investors that get that bull markets and economic expansions don’t last forever. I appreciate that about it.

This heavy weighting in bonds does come at a cost even though they can be an excellent risk management asset. 

In my video below, I share what bonds have done in past bear markets.



Cons of the All Weather Portfolio

Again, where there are pros, there are cons. Here’s what I don’t like about the All Weather Portfolio.

1. Underperformance During Bull Markets

The All Weather Portfolio is a very defensive portfolio with only 30% allocated to stocks, all in the US. Therefore, during bull markets, it will underperform vs simply owning only a large US stock index, such as an ETF like SPY or VTI.

The all stock portfolio will outperform the All Weather Portfolio over certain time frames, as you’ll see later in this post, but during bad economic times, the All Weather Portfolio will perform better.

Which strategy (an all stock or the All Weather portfolio) performs better depends on factors way beyond our control, like the economy and interest rates.

There is no way of predicting bear stock markets with timing certainty. You can, however, use recent and long term history as a guide to increase the predictability of whether it’s better to own more defensive assets or not.

This awareness is what leads investors to more active portfolio re-balancing with strategies such as the All Weather Portfolio, such as monthly re-balancing instead of yearly.

Alternative Wealth Solutions are also available for more active portfolio management. 

2. Out Performance Due to Interest Rate Declines

Performance results for the All Weather Portfolio don’t reflect long during periods of decreasing interest rates. This accounts for some of the popularity of this investment strategy when it first became well known.

Unfortunately, many investors come to expect the same performance even during different economic circumstances.

Long term outperformance may not be the case with the All Weather Portfolio, however. Due to the large allocation in bonds, this portfolio will do well when interest rates are rising as they have been doing since the prime rate peaked at over 21% in December 1980!

It seems logical that interest rates will rise again at some point. When they do, the All Weather Portfolio will not perform as well since bonds go down when interest rates go up and this strategy has a large bond allocation of 45%.

3. Temptation to Tweak

It can be very tempting for an investor to tinker with this portfolio. 

Such temptations can be overcome, however, if you work from an overall wealth plan, and this particular portfolio helps you achieve your long term goals. If you see that, based on past returns with reasonable adjustments to those returns, you can reach the level of wealth you want by a certain time, it’s easier, to follow any investment strategy.

Admittedly, while I’m a tactical vs a strategic investor myself nowadays, I adjust my ETF portfolio in adherence to a system with strong backtested results that meet my strict criteria for index beating returns with acceptable risk. 

4. Less Than Stellar Returns

Let’s face it; The All Weather Portfolio returns are not stellar.

That’s the problem with defensive portfolios. They underperform during times of economic expansion and perform well during bear markets.

Here’s what I’ve learned: Risk management is painful when we don’t need it and a Godsend when we do.  

The All Weather Portfolio keeps investors prepared for bear markets at all times. This can be both good and bad. 

5. After Inflation Return

The All Weather Portfolio’s has a very high allocation to bonds. Inflation is particularly challenging for bond investors since they are locked into low-interest rates even as the cost of living rises from inflation.

This hurts bond investors in two ways. The value of the income deteriorates from inflation. The value of bonds drops during high inflation because higher yielding bonds can be obtained. 

In my video below I explain inflation in more detail.   



6. Bonds Have Risk

Many investors are unaware that bonds are not without risk. Again, the All Weather Portfolio has a very high allocation to bonds.

What are the risks of bonds

  • When interest rates go up, the value of bonds goes down. 
  • Bonds provide marginal performance during most time frames. 
  • Also, inflation is particularly bad for bond investors as addressed previously.  

All Weather Portfolio Vs S&P 500

Investors are always looking to compare investment strategies to simply owning an S&P 500 index. The All Weather Portfolio simply cannot be compared to an all stock portfolio. 

It’s easy to look back after bull markets and see that an all stock portfolio would have performed much better than a defensive strategy like The All Weather Portfolio. What investors often forget, however, is that they had superior risk management by owning that defensive portfolio.

Is All Weather Investing Good? 

There will be times when The All Weather Portfolio would be considered good and times when it would not be considered good. This will depend on economic cycles.

In 2009, investors would have been thrilled with an annualized investment return of 5% or more.

This is because most stock investors had experienced negative annual returns for a decade! On the other hand, in 2021, investors would turn up their noses at a 7% return due to the massive bull market from 2010 t0 2020.

Managing stock market risk always comes at a cost. 

All Weather Portfolio Summary

As I often say, no one is going to get rich from long term buy and hold index investing unless they:

  1. Have at least a couple of decades to compound wealth from their investments OR
  2. Are already wealthy since their wealth compounds on top of their accumulated massive wealth

For this reason, you can see how the All Weather Portfolio is ideal for the Dalio family but may not work well for someone trying to build wealth without decades to do it.

Overall, however, the All Weather Portfolio can be an excellent strategy for wealthy investors who don’t need to increase wealth necessarily. It can also work for those seeking a low risk, easy to manage investment portfolio that slowly builds wealth.

As I share with my coaching clients, there are similar low-cost portfolios that require only a little more work that have historically had up to double the return of the All Weather portfolio with comparable low risk.  


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The information on this website is for education only and is not to be construed as personal financial advice.