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HomeUncategorizedRay Dalio’s All Weather Portfolio: How To Properly Diversify Your Investments And...

Ray Dalio’s All Weather Portfolio: How To Properly Diversify Your Investments And Lower Risk

Ray Dalio's all weather portfolio is one of the best investment portfolio allocations based on risk adjusted returns. We’ll discuss Dalio's all weather portfolio and his advice on how to diversify your investments to lower risk. Subscribe here for more content:

► Access my stock portfolio & financial spreadsheets here:

How the Economic Machine Works video:
Paradigm Shifts article:
All weather portfolio in M1 Finance:
Golden Butterfly/Crash Proof Portfolio video:

Ray Dalio has often suggested his All Weather portfolio as an investment option for individual investors looking to achieve good returns for low risk. It was a portfolio allocation popularized in Tony Robbin’s book, MONEY Master the Game: 7 Simple Steps to Financial Freedom. And over the long term, it has shown an impressive history of delivering consistent returns with half the risk of less of traditional stock investment portfolios.

How does the All Weather portfolio achieve this?

Short answer: diversification.

Here’s how Dalio described the impact of diversification, what he calls the Holy Grail of investing:

“That simple chart struck me with the same force I imaging Einstein must have felt when he discovered E=MC2: I saw that with fifteen to twenty good, uncorrelated return streams, I could dramatically reduce my risks without reducing my expected returns. It was so simple but it would be such a breakthrough if the theory worked as well in practice as it did on paper. I called it the “Holy Grail of Investing” because it showed the path to making a fortune. This was another key moment in our education.

We were startled by the results. On paper, this new approach improved our returns by a factor of three to five times per unit of risk, and we could calibrate the amount of return we wanted based on the amount of risk we could tolerate. In other words, we could make a ton more money than the other guys, with a lower risk of being knocked out of the game — as I’d nearly been before.

The success of this approach taught me a principle that I apply to all parts of my life: Making a handful of good uncorrelated bets that are balanced and leveraged well is the surest way of having a lot of upside without being exposed to unacceptable downside.”

Now, while you might not have as many uncorrelated return streams as Dalio, you can still mimic very similar returns by investing in uncorrelated (or low-correlation) asset classes within a portfolio.

One example of how that can be achieved is the All Weather portfolio asset allocation:

30% Total Stock Market
40% Long Term Bonds
15% Intermediate Bonds
7.5% Commodities
7.5% Gold

You can view the historical return and risk metrics of this portfolio in Portfolio Charts here:

An average investor can easily replicate this with a combination of low-cost index fund ETFs:

30% Vanguard Total Stock Market ETF (VTI)
40% Vanguard Long-Term Bond ETF (BLV)
15% Vanguard Intermediate-Term Bond ETF (BIV)
7.5% iShares S&P GSCI Commodity-Indexed Trust (GSG)
7.5% iShares Gold Trust (IAU)

You can view this portfolio in M1 Finance here:

Now of course this is only one example of using diversification across asset classes to reduce portfolio risk. Another example that is similar to how I am currently investing my own stock portfolio (which you can view via the second description link) is the Golden Butterfly portfolio.

Hopefully, this gives you a better appreciation of the value diversification can have in reducing portfolio risk and give you some practical examples for how you can implement greater diversification within your own investment portfolios.

If you have any questions about the content in this video or suggestions for future videos, please share them in the comments below!

DISCLAIMER: This video is a resource for educational and general informational purposes and does not constitute actual financial advice. No one should make any investment decision without first consulting his or her own financial advisor and/or conducting his or her own research and due diligence. There is no guarantee or other promise as to any results that may be obtained from using this content. Investing of any kind involves risk and your investments may lose value.

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Michael Jay – Value Investing

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20 COMMENTS

  1. Great video Michael! Really enjoyed it. Ray is something special and his advice is priceless.

    Also thanks for the portfolio charts suggestion.

  2. Really informative! I wish you had a podcast on spotify.. I would listen to your videos in the car on my commute to work.

  3. Dear Michael, thank you so much for this great synthesis. A question, earning and living (I.e. spending) in the Euro-zone, how does the forex risk affect this asset allocation, given it’s mostly denominated in USD? How would you deal with this matter? Many thanks, David

  4. Thank you for one of the better and more concrete breakdowns of his mentality.
    Can you maybe make clear on which brokers you can buy these assets ? Thanks!

  5. I remember seeing this video a while ago and then I couldn’t find it in today while scrolling around on YouTube I found it again. Thanks so much for your excellent videos you really do a good job of explaining things

  6. You got yourself a subscriber in the first minute of the video. VERY STRUCTURED AND STRAIGHT TO THE POINT!!

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