The All Seasons Portfolio

Another classic portfolio in the Risk Parity world, this is the portfolio Ray Dalio adapted for individual investors. It's a safer, more diversified version of the 60/40, with lower volatility but also slightly lower returns.

Breakdown of the All Seasons Portfolio

This is the second classic portfolio I’ll be tracking to see how it performs given my particular withdrawal rules and compared to the others. The All Seasons is the popular version of the Risk Parity-style portfolio advocated by the investor most associated with the style - Ray Dalio. Originally, Dalio and his firm, Bridgewater Associates, developed the All Weather portfolio to showcase the principles of risk parity. It was a great success, but it was designed for professional use and wasn’t the easiest to set up or maintain for the everyday investor. Tony Robbins interviewed Dalio, then published a modified version of that portfolio for the common investor in his book, Money: Master the Game. It follows Dalio’s original intent: to have a portfolio that will perform whatever the economic conditions, or in other words, a portfolio for all economic seasons. For that, you have the 30% to stocks for the sunny times, 55% in bonds for the winter, and small portions in commodities and gold for the spring storms or the random heat wave in October. You can read more about the All Seasons Portfolio in a very helpful overview on Portfolio Charts.

The All Seasons portfolio is a staple of websites that track investment portfolios. Indeed, it’s one of the portfolios that Frank Vasquez follows on his site, Risk Parity Radio, and has a prominent position on Portfolio Charts. I decided to track it myself, though, to see how it performs under the conditions I apply to all of my tracked portfolios so that I can make an apples-to-apples comparison of it alongside the others. Like the Classic 60/40, the All Seasons is not one that I think I’ll actually implement when I’m in the decumulation stage, but it does bear watching. I also created a levered version of this portfolio (the Levered Seasons), so I have it here for the sake of comparison with its aggressive counterpart.

The strengths of the All Seasons portfolio are that the inclusion of commodities and gold give it some ability to thrive in times of market portfolio, at least compared to the Classic 60/40, which was limited to just two asset classes. The higher proportion of bonds compared to stocks gives the portfolio a great deal of stability, at least when seen over a longer time horizon. Of the ten test portfolios, it has the second-lowest standard deviation (8%) and low and brief drawdowns. The Ulcer Index is a comforting 3.6, much lower than the purportedly stable Classic 60/40! The portfolio is relatively easy to track and withdraw from, and should provide decent dividends (if that matters to you). The presence of two types of treasuries provides much negative correlation in the portfolio, while the presence of gold introduces an element of helpful randomness, as its price doesn’t correlate much with any of the other four assets. The drawbacks might be lower overall portfolio growth, given it has just 30% in stocks. It has the lowest projected annual real return (5.6%), and very low withdrawal rates: 4.4% and 3.8% for the SWR and PWR, respectively.

Here is the Correlation Matrix (Data from 2006; substitutions made to lengthen available data; credit to Portfolio Visualizer):

Correlation Matrix for the All Seasons Portfolio

And, the Backtest Analysis (Data from 1970; credit to Portfolio Charts):

Backtest for the All Seasons portfolio