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#217: Revisiting Ray Dalio’s All Weather Portfolio

#217: Revisiting Ray Dalio’s All Weather Portfolio

micksonmatch
January 23, 2025

S2N Spotlight

Today will be brief.

Ray Dalio is writing a new book called How Countries go Broke He is publishing the first few chapters for free on LinkedIn. I would urge you to read his work to gain a greater understanding of how the economic machine works from one of the most successful fund managers of all time.

I have a love-hate relationship with Dalio. I personally think he is brilliant, but I got heavily influenced by the Rob Copeland book called The Fund and a fund manager I know in the US who has met Ray a few times. The way I judge Dalio is irrelevant; the man is brilliant, and he is very generous with his time, knowledge, and money.

One of his great legacies is the All Weather Fund he came up with, taking Bridgewater to the top of the hedge fund league. Based primarily on the principles of his strategy, this is what the performance looks like.

All Weather (Ray Dalio)

STOCKS (30%): S&P 500 large-cap (18%) US small-cap (3%) MSCI EAFE, Europe, Australasia and Far East (6%) MSCI EEM, Emerging Markets (3%)

FIXED INCOME (55%): US 10-year government bonds (15%) US 30-year government bonds (40%)

COMMODITIES (15%): Gold (7.5%) S&P GSCI (7.5%)

The All Weather performed exceptionally well with a CAGR of 8.94% and a brilliant Sharpe Ratio of 1.

The benchmark S&P 500 Total Return produced a 10.97% CAGR and a Sharpe Ratio of 0.51.

Once again I would argue the All Weather risk-adjusted performance was and is an amazing performer since 1969. Yes, it has underperformed over the last few years, but which balanced portfolio hasn’t?

An astute subscriber asked me yesterday whether the 60/40 portfolio had done so well because of the bond bull run over the period I showed, 1983-2025. The answer is no; here I went back to 1920. Not many models go back that far.

S2N Observations

We are almost at a new ATH with the market cap S&P 500. I was wondering how the equal-weighted index was doing. This market is clearly in love with the big names.

We are due for a data update on M2 Money Supply; as you can see, we have hardly reduced the amount of money in circulation as of the end of November 2024. Inflation is unlikely to come down without a drop in circulating money.