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The All-Weather Strategy: Riot's first portfolio

Updated: Dec 4, 2023

The all-weather portfolio is a type of lazy portfolio. This term is used to define a portfolio characterized by a fixed asset allocation and which, as the term 'lazy' implies, allows investors to manage their investments by dedicating very little time to them. This happen because, once the weights have been defined, the investor will limit himself to carrying out the necessary rebalancing with a fixed cadence, such as every six months or annually. This category of portfolios is based on 3 asset classes: stocks, bonds, and commodities.

Among the most famous Lazy portfolios is the All-weather of Ray Dalio, founder of Bridgewater Associates, the world's largest hedge fund with over $150 billion in assets under management. The question behind the creation of this portfolio was: "what kind of investment portfolio would you hold that would perform well across all environments, be it a devaluation or something completely different." The answer to this question was reached in 1996 by the Bridgewater team after years of study based on the search for an investment strategy that would be indifferent to changes in economic conditions.

Based on the assumption that the various asset classes perform positively depending on the economic cycle, equities during periods of growth, bonds during periods of recession with falling inflation, it is possible, by combining long and short-dated bonds together with equities and commodities, to obtain a portfolio that can perform positively in any economic phase.

Generally, it consists of the following allocation:

1. 30% in stocks, specifically Ray Dalio uses the S&P 500 index. Many investors prefer to use the MSCI World index as it offers greater diversification.

2. 40% long-term bonds. This refers to an investment horizon of more than 20 years.

3. 15% medium-term bonds. These are government bonds with a duration of between 7 and 10 years;

4. 7.5% in gold

5. 7.5% in commodities.

Using this asset allocation, the graph shows how an initial investment of €1000 in March 2005 reaches a value of just over €3100. Moreover, the upward trend shows how such a portfolio manages to perform satisfactorily in any phase of the economic cycle, even during the great crisis of 2008.

This investment strategy has several advantages:

Low-risk portfolio structure

As the chart shows, the portfolio will not suffer large losses. This is mainly due to its high allocation to uncorrelated defensive assets. For example, when stocks fall, Treasury bonds have risen in recent decades, and gold and commodities have often behaved similarly.

It is an all-season portfolio

As the name suggests, the All-Weather portfolio is suitable for positive performance in every phase of the economic cycle.

However, this kind of portfolio may not suit the needs of some investors as it is inconsistent with their investment strategy. In fact, the portfolio has several disadvantages:

Insufficient performance during bullish markets

The All-Weather Portfolio has a 30% allocation in the equity market. Therefore, during bullish markets, the portfolio will underperform a simple S&P500 index fund.


Remember that the All-weather portfolio holds more than 50% in bonds and inflation is the main problem for this investment strategy. Inflation is a big problem for bonds as investors will be locked into low interest rates. In fact, the value of bonds decreases during periods of high inflation - like the one we are going through now - as it erodes the purchasing power of the bond's future cash flows, thus decreasing the return in real terms.

Taking the merits and demerits of this investment strategy into consideration, the All-Weather portfolio is suitable for risk-averse investors who want positive returns at any point in the economic cycle and prefer a long-term investment strategy. In addition, this type of portfolio is suitable for investors who do not need to significantly increase their wealth.

Gyroscopic Investing Desert Portfolio

This portfolio has the lowest drawdown among the main lazy portfolios. This is possibile due to its formed asset allocation:

1. 30% by the Vanguard Total Stock Market ETF, a fund that replicates the index that includes all the companies listed on the US stock market, including small, medium, and large capitalization companies;

2. For 60% by the Vanguard Intermediate-Term Treasury ETF, a fund that follows the trend of the Barclays index which contains US government bonds with maturities between 3 and 10 years;

3. 10% from iShares Gold Trust, a fund that follows the trend in the price of gold.

There are therefore similarities with Ray Dalio's portfolio, such as the percentage invested in equities and gold, while there is an important difference regarding the bond part of the portfolio, being in this case made up of bonds with a shorter maturity and consequently less affected by interest rate risk.

Golden Butterfly Portfolio

The Golden Butterfly is a portfolio that reflects the logic Ray Dalio used for the All-Weather Portfolio: to achieve satisfactory returns regardless of the economic environment. In fact, the asset allocation is designed to allow increasing returns by tracking across five asset classes:

1. Global Equity Market;

2. Small-capitalisation companies;

3. Long-term bonds;

4. Short-term bonds;

5. Gold

This portfolio differs slightly from the All Weather, in fact one can easily see that the Golden Butterfly has a higher share of equities and a higher share of gold than Ray Dalio's portfolio. In addition, bonds account for 40% versus 55% for the All Weather. From this the Golden Butterfly is riskier and therefore yields more than Ray Dalio's proposed investment strategy.





BB portfolio was created with the intention of pursuing the same objectives as a Lazy Portfolio, with the aim of creating a balanced, diversified and resistant portfolio to market fluctuations. For this occasion, an asset allocation was chosen that gives more weight to the stock market - as in the Golden Butterfly - and at the same time contains the asset classes of the Lazy Portfolios. The result obtained made it possible to obtain higher returns than all the portfolios studied so far. In detail, the chosen portfolio is made up of:

1. Stock Market (40%), ‘iShares Core S&P 500 UCITS ETF (Ticker CSSPX)’;

2. Gold (15%), for instance ‘iShares Physical Gold ETC (Ticker PPFB)’;

3. US Treasury Long Term (30%), such as iShares USD Treasury Bond 20+yr UCITS ETF USD (Acc) Ticker SXRC;

4. US Treasury (15%), as the iShares USD Treasury Bond 7-10yr UCITS ETF (Acc) Ticker SXRM.

As the graph shows, the portfolio composed in this way obtained an average annual return of 5% higher, higher than the three cases analyzed.

This portfolio, as can be seen from the graph above, has allowed us to obtain positive returns over almost all of the past 10 years with the only major exception of last year in which it obtained a negative return of 20% as both the stock market and the bond one collapsed.


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