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So, today's concept comes from one of the biggest names in finance. It's called the All-Weather Portfolio, and the goal is right there in the name. Hold up, no matter what the economy does. We're covering all five underlying positions today, plus exactly what to buy for each. The All-Weather Portfolio is built to hold up across any economic environment by balancing assets that perform well in each one.
The logic starts with four possible regimes. Rising growth, where stocks tend to lead. Think of a normal economic expansion. Falling growth, where long bonds tend to lead. Think of a recession. Rising inflation, where gold and commodities lead. Think of the 1970s oil shocks here. And falling inflation, where bonds tend to hold steady.
Most portfolios are quietly built for just one of these regimes, using rising growth, since that's the environment stocks do best in, and the one most portfolio advice is implicitly assumed on. That works fine until growth stops rising. Nobody can predict which regime is coming next. So, instead of betting on one, this portfolio holds something built for all four at once.
Pillar one is stocks, about 30% of the portfolio. That's lower than most people expect for a long-term strategy, and that's intentional. Stocks are roughly three times more volatile than bonds, so even at 30% of the dollars, they're doing a disproportionate share of the risk-taking. If you just split a portfolio 50/50 by dollars between stocks and bonds, stocks would still end up driving most of the swings, because they move so much harder in both directions.
Dalio's whole design principle is balancing risk contribution, not just dollar amounts, and that's why stocks get a smaller dollar share here than in a typical target date fund. So, quick disclaimer before we get into the tickers. The funds I'm naming are just well-known examples, so you can see what this looks like in practice, not a recommendation to go buy them.
I'm not a financial advisor and this isn't personalized advice, so do your own research for sure before you invest in anything. For the stock piece, it's the same three options from our three fund portfolio video. VTI at Vanguard, ITOT at iShares, and SCHB at Schwab. Any broad US total market fund does the job here.
Nothing special needed for this slice. Pillar two is bonds and this is the part that surprises most people. About 55% of the portfolio split between long-term and intermediate treasuries. Long-term bonds tend to do well when growth slows. Intermediate bonds help when inflation is cooling. Together, they're the largest single piece of the whole portfolio, more than stocks and hard assets combined.
The reason for splitting between two maturities instead of just picking one comes down to duration. Essentially, how sensitive a bond's price is to interest rate changes. Longer maturities swing harder when rates move, which is exactly the behavior this portfolio wants for the falling growth regime, while the intermediate slice is a bit steadier.
Put another way, the long bonds are doing double duty. They're both a diversifier against stocks and a source of real price movement in their own right, which is unusual for what most people think of as the safe part of a portfolio. This pillar is actually two separate funds. For long-term treasuries at 40% of the portfolio, that's VGLT at Vanguard, TLT at iShares, or SCHQ at Schwab.
For intermediate-term treasuries at 15%, that's VGIT, IEI, or SCHR. One thing worth flagging, these are treasury-only funds, not the broad total bond funds from our three fund video. All weather specifically wants government bonds here for how they behave in different regimes, not a blend that includes corporate debt, which behaves more like a hybrid of bonds and stocks during a downturn.
Pillar three is gold and commodities. 15% combined, split evenly. This is the piece built specifically for rising inflation, an environment where stocks and bonds can both struggle at the same time, which is exactly what happened during the high inflation stretch of the 1970s that partly inspired this design.
It's the smallest slice, but it closes the one gap the other two pillars leave open. For gold, three solid options. GLD, the largest and most liquid. IAU from iShares, a bit cheaper on the expense ratio. Or GLDM, which has the lowest share price. Useful if you're investing smaller amounts at a time and want precise position sizing.
For the commodities half, DBC is the most established fund, but it issues a K-1 tax form, extra paperwork at tax time that some investors would rather avoid. PDBC tracks similar commodity exposure without the K-1 headache, which is why a lot of investors prefer it in a taxable account. Though it's worth comparing their underlying holdings before assuming they're interchangeable.
So, here's the full five-fund split. 30% US stocks, 40% long-term treasuries, 15% intermediate treasuries, 7.5% gold, 7.5% commodities. Since this portfolio holds five positions instead of three, once a year rebalancing back to these targets is typical regardless of which regime the market's been moving through.
Some investors also use a wider drift band here, only rebalancing once an allocation moves five to 10 percentage points off target. Since more frequent rebalancing across five positions adds transaction costs, and in a taxable account, potential tax consequences. If you're building this inside a 401k or IRA where trades don't trigger taxes, you have more freedom to rebalance on a stricter schedule without that concern.
Here's the whole pyramid in one shot. Stocks at 30% for growth, bonds at 55% for ballast, gold and commodities at 15% for inflation protection. Three pillars, five underlying funds, sized so that no single economic regime can sink the whole portfolio. So, what's the cost of all this balance? Historically, about a 1.9 percentage point gap in annual return adjusted for inflation compared to the S&P 500 looking at data from 1973 to 2024.
In exchange, you get roughly half the volatility and much shallower drawdowns. During market crashes that cut stock portfolios in half, all-weather style portfolios have historically lost meaningfully less. This is a portfolio for someone who'd rather sleep well through a downturn than chase the highest possible number in a good year.
Worth noting, this backtest covers a period that includes some of the worst bond markets in modern history. The early 1980s rate spikes and the 2022 rate hikes both hit long-duration treasuries hard. Even across that stretch, the smoother ride argument held up, which says something about the design holding together across genuinely different environments, not just calm ones. So, that's the all-weather portfolio, all five pieces of it. See you next week.
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