Ray Dalio’s All Weather Portfolio 2023 (Singapore Edition)

Have you ever heard of the All Weather Portfolio? It’s a portfolio that is designed to do well in all economic environments. The portfolio is designed to do well, even in a recession and during times of uncertainty! In this article, I will share more about the All Weather portfolio, and dive deep into how Singaporeans can build this portfolio in a localized context.

Understanding the All Weather Portfolio

The “All Weather” Portfolio was first conceptualized by the founder of Bridgewater Associates, Ray Dalio. Firstly to understand how this portfolio works, we need to understand Ray Dalio’s investment thesis. According to Dalio, there are only 4 things that can move the price of an asset and they are:

1. Inflation
2. Deflation
3. Rising Economic Growth
4. Declining Economic Growth also known as a Recession

From this, we can see that there are 4 clear possible environments or economic seasons that might affect asset prices, although they might not come in this specific order. Because there are only 4 possible economic environments or seasons, Dalio’s investment thesis revolves around having 25% of your risk in each of these 4 categories. This is why the portfolio is termed the “All Weather Portfolio”, because the portfolio is well diversified across each possible economic environment, allowing the portfolio to do well regardless of which season you are in.

So what asset classes thrive in each season? The image above breaks down which type of investment will perform well in each of these environments. Investors usually struggle with investment theories and principles as they are easy to digest but hard to execute. Thankfully, Ray Dalio has actually shared a sample portfolio that investors could reference.

Let’s dive deeper into each component of the portfolio and understand why they are sized as such. Firstly, a 30% exposure to stocks, specifically ETFs of indexes such as the S&P500 to help further diversify the portfolio. Next, adding some stability into the portfolio with bonds, specifically government bonds with a mixture of 15% in shorter-term bonds (7- to 10-year treasuries) and 40% in longer-term bonds (20- to 25-year treasuries). Last but not least, some exposure to commodities, with 7.5% in gold specifically and 7.5% in other commodities. The reason why there is a 15% allocation to commodities is that you need an asset class that will do well when inflation is rising rapidly.

Another important point to take note regarding the All Weather portfolio is that you need to remember to occasionally rebalance your portfolio. This will ensure that the allocations are well-balanced, especially when one segment does well.

So you must be wondering how well this portfolio has performed and whether or not it’s worth your time and effort to follow it. Over a 30-year period from 1993 - 2023, this portfolio has returned a remarkable CAGR of 7.17% as compared to the STI’s 2.46% and the S&P500’s 7.93%. Although it did underperform the S&P500 slightly, it is important to note that the S&P500 is a lot more volatile than the All Weather Portfolio which might not suit some investors.

Read more here: https://sgstockmarketinvestor.com/ray-dalios-all-weather-portfolio/