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IC Speaks4 Mins Read

All Weather Portfolio: How Good Is It For Current Times?

all-weather portfolios

Work from home is unchartered territory, but these days, most of us are home. And with all social media platforms available, anyone who has a view, can voice them. This includes pearls of wisdom about WFH or cute videos of dogs or even late-night shows aired from living rooms. Suddenly, kids popping up during zoom calls is ok and encouraged. But one pitfall of WFH is that kids listen in to some of the conversations and it leads to interesting questions. And no, I am not talking about birds and the bees’ type of stuff – kids get all that from their numerous devices.

I am talking about questions, that I can answer using jargon, but struggle to explain in simple English. One such question landed when I was preparing for a recent webinar, we hosted at Kristal.AI on Ray Dalio’s All-Weather Strategy. This strategy has been around for more than 50 years and constructs a portfolio designed to achieve optimal performance through all economic conditions including inflation, deflation, bull, bear or sideways markets. Aka all weather. A portfolio that will help navigate the ups and downs of the market. The strategy is based on two key assumptions. No one knows what the next economic cycle is and that different assets behave differently in different cycles. And these assumptions are ultimately based on models of correlation and risk parity.

So, when my son overheard me and asked about correlation and diversification, I kept the [formula for correlation coefficient] aside and instead used the example of two businesses –ice creams and umbrellas. When its sunny, the ice cream sells and when it rains, the umbrella business does well. And they are highly uncorrelated because when one does well, the other one suffers a lot. Now if you add a business of selling raincoats in the mix, what happens? Raincoats and umbrellas are highly correlated, both will do well when it rains, and both will fail if there is a dry spell. So diversification requires investing in assets that are relatively uncorrelated. He seemed to understand, but said, ice cream business is the best and adding many more flavors may help diversify. And that is what we call a home bias, a preference for something that we know and like. He also gave me some words of wisdom too – Why don’t you use animations to explain concepts in your webinar.

But coming back to the All-Weather strategy, it does not fare well all the time. The assumption is that all asset classes, viz., equities, commodities, long term and medium-term bonds will behave differently. But they don’t always follow this principle. There are times and we have seen one too many, when all of them behave in the same manner, and that’s when correlation becomes one and all investors want to do is sell anything that can be sold and hold cash, literally for dear life.


Barring such rare, black swan type of events, the all-weather is a good, simple and proven strategy. It is accessible because it can be constructed with a few ETFs, keeping the cost low and easy to execute. It has a proven track record for many years and across different economic cycles. It also addresses the problem of underinvesting, seen commonly when there is risk aversion.

Investment strategies are like religion. They all claim to give direct access to the one and only one, supreme God, ie., returns and they want only Believers to follow them. Ask a long-short manager, and we will find sworn allegiance to the hedge fund strategy. Or a trader using technical and charts to keep all emotions out and religiously puts stop loss and take profit on the basis of Fibonacci and Bollinger Bands.

All-Weather is one such religion with a large number of followers and if you are one of them, then you are not alone. Given its popularity, we have also created a Kristal applying the principals of All Weather to help you invest in this strategy in a simple and effective manner.

If you are interested in knowing more about this strategy, please do write in to us at support@kristal.ai. We’re always happy to help!


The materials and data contained herein are for information only and shall in no event be construed as an offer to purchase or sell or the solicitation of an offer to purchase or sell any securities in any jurisdiction. Kristal Advisors does not make any representation, undertaking, warranty or guarantee as to the update, completeness, correctness, reliability or accuracy of the materials and data herein. All opinions, forecasts or estimation expressed herein are subject to change without prior notice. Kristal Advisors and its affiliates accept no liability or responsibility whatsoever for any direct or consequential loss and/or damages arising out of or in relation to any use of opinions, forecasts, materials and data contained herein or otherwise arising in connection therewith.

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All Weather Strategy Ray Dalio

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