With a volatile market, inflation and more than a little anxiety over the possibility of a recession, interest in the All-Weather Portfolio originated by Ray Dalio (Trades, Portfolio) is up.
Dalio, the billionaire hedge fund manager and founder of Bridgewater Associates, created the All-Weather Portfolio to perform well in all kinds of market conditions. During times of inflation or deflation, economic growth or decline, the asset allocation formula will create a portfolio that will steadily grow in profitability with a low amount of risk.
The formula is simple:
- 30% Stocks
- 40% Long-term treasuries
- 15% Intermediate-term treasuries
- 7.5% Commodities, diversified
- 7.5% Gold
Rebalancing is key to keeping an all-weather portfolio on track. Rebalance any time a sector of your portfolio grows by 10% to 15%, or you can check changes in percentages once or twice a year and rebalance as needed.
An all-weather asset allocation plan can include exchange-traded funds, making it easy to diversify within sectors. Since the plan is in percentages and many ETFs can be bought in fractional shares, the all-weather plan is scalable for basis amounts of all sizes. These ETFs could be good additions to your all-weather portfolio.
Stocks
Value investors will want that 30% of stocks to be shares from profitable companies that would qualify as value stocks. One of the easiest ways to pick up value shares by investing in a value ETF such as the EA Series Trust Guru Favorite Stocks ETF (GFGF, Financial) or the Vanguard Value ETF (VTV, Financial). One with a larger exposure to the U.S. stock market is Vanguard Total Stock Market ETF (VTI, Financial).
Long-term treasuries
Bonds may have you reconsidering this portfolio right now, but the all-weather portfolio is a long-term plan that has offered more than 7% growth over decades. Forty percent of your all-weather portfolio can be Vanguard Long-Term Treasury Index Fund ETF (VGLT, Financial).
Intermediate-term treasuries
An intermediate-term treasury ETF is one that invests in a selection of government bonds that mature in about five to 10 years. An ETF to cover this sector is Vanguard Intermediate-Term Treasury ETF (VGIT, Financial).
Commodities
There are all sorts of commodities ETFs that focus on one sector, but for an all-weather portfolio, you will want a diversified commodities ETF such as Invesco DB Commodity Index Tracking Fund (DBC, Financial).
Gold
To cover the 7.5% of the all-weather portfolio, consider a gold ETF such as iShares Gold Trust (IAU, Financial).
The bottom line
The positives of an all-weather asset allocation, such as performing well during bear markets, low risk and income, can make the plan one to consider for long-term growth.
All-weather still has moderate upside potential without large risks. Other than rebalancing after growth or dividends to keep the all-weather proportions intact, it is a low-maintenance investing strategy. For value investors, an all-weather asset allocation could be a plan for the ages.
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