How to Build an All-Weather Portfolio

In Episode 14 of The Smarter Money Show, we explore the concept of an all-weather portfolio — a strategy designed to perform in good times and bad. You’ll learn the key asset classes to include, how to balance risk and return, and why traditional 60/40 models may no longer be enough.

We discuss diversification beyond just stocks and bonds, incorporating assets like gold, cash, and alternatives. The episode also breaks down real-world allocations used by legendary investors like Ray Dalio. By the end, you’ll have a clear framework for building a portfolio that protects capital and grows steadily, no matter what the markets throw at you.

Episode Transcript

Speaker 1 (00:00):
As always before we begin, this podcast is for informational
and educational purposes only. It is not financial advice. Always
do your own research and consult with a licensed advisor
before making any investment decisions. Welcome back to the Smarter
Money Show. I'm your host, and this is episode fourteen.
Today we're talking about something that every investor needs, but

(00:21):
few actually build an all weather portfolio. Most people invest
for one scenario, a growing economy, rising markets, good times.
But what happens when the economy slows down, when inflation spikes,
when markets crash. If your portfolio only works when everything's perfect,
you don't have a portfolio, You have a bet. That's
where the all weather strategy comes in. The idea is simple,

(00:44):
create a portfolio that performs reasonably well in any environment,
not just when tech stocks are booming. You're not trying
to beat the market every year. You're trying to survive
the storm, stay consistent, and compound over decades. So let's
start with the basic principles. True all weather portfolio should
be diversified across uncorrelated assets, balance between growth and stability,

(01:06):
designed to minimize drawdouns. Built to reduce emotional decision making.
Simple enough to manage without stress. Now where does this
idea come from. One of the most well known all
weather models was popularized by Ray Dalio, the founder of
Bridgewater Associates, the largest hedge fund in the world. He
created a portfolio structure based on how different asset classes

(01:29):
perform in different economic environments, rising growth, falling growth, rising inflation,
and falling inflation. Here's the logic. Stocks do well when
growth is rising and inflation is low. Bonds do well
when growth is falling and inflation is low. Commodities in
gold do well when inflation is high. Cash and short
term instruments protect you in downturns. By combining them strategically,

(01:53):
you reduce the risk that your entire portfolio collapses under
one scenario. Let's walk through a classic all weather alection
based on Dalio's public version. Thirty percent US stocks, forty
percent long term US treasury bonds, fifteen percent intermediate term
treasury bonds seven point five percent gold, seven point five
percent commodities. You might look at that and think fifty

(02:15):
five percent bonds. Really yes, because in a crisis, those
long duration bonds are often the only thing that hold
up when stocks drop. Interest rates usually fall and bond
prices rise, giving you a buffer. Now you don't have
to copy that allocation exactly. In fact, you probably shouldn't,
but the core idea is powerful diversified not just across assets,

(02:38):
but across economic outcomes. Here are modern ways to think
about this strategy, especially for retail investors. Core equities forty
sixty percent. This can be total market ETFs like VTI,
international exposure like VXUS, and factor based funds like SCCHD
or QQQM. You want global exposure, not just US tech income.

(03:00):
Twenty thirty percent include both short term and long term bonds.
Use instruments like B and D total bond market TLT,
long term or even short duration bond ETFs for stability
and yield. Inflation protection ten fifteen percent gold commodities or
even tips treasury inflation protected securities. These assets tend to

(03:22):
perform when inflation surges and stocks fall flat cash or
cash equivalents five ten percent dry powder optionality, something to
keep you calm during volatility or to deploy when markets drop.
Optional alternatives five to fifteen percent. Riites, private equity, bitcoin,
manage futures, or other uncorrelated strategies, but only if you

(03:44):
understand the risk, that's the base. What matters most is
not the exact allocation, but the balance of risk. Most
portfolios are overweight equities, meaning when markets crash, the whole
thing suffers. The all weather mindset forces you to ask
what happens if interest rates rise? What happens if inflation spikes?
What if growth slows? For years? Am I protected? It

(04:05):
also helps you manage your behavior. When you know your
portfolio isn't built for just one outcome, you panic less
when the unexpected happens. Let's also talk about rebalancing. This
is key. Every six to twelve months, you reset the weights.
That means selling what's done well and buying what's lagged.
It feels counterintuitive, but over time it enforces discipline and

(04:25):
improves returns. Rebalancing also lets you trim risk without trying
to time the market. It's a simple rule that beats
emotional guessing. So who should use an all weather portfolio?
Anyone who wants lower volatility, long term investors who hate surprises,
people nearing retirement, entrepreneurs or business owners with volatile income,
anyone who doesn't want to watch the market every day.

(04:48):
It's not for everyone. If you're young, aggressive and have
decades ahead. Maybe you want more equity exposure. That's fine,
but even then, having a portion of your capital in
an all weather allocation can stayabilize your overall net worth.
And here's the final truth. The best portfolio is the
one you can actually stick with. It's not about maximizing
returns in a spreadsheet. It's about surviving bad years, avoiding

(05:11):
big mistakes, staying in the game. The all weather portfolio
isn't sexy, but it's durable and over time, durability is
what builds wealth. To recap, diversify by economic outcome, not
just by asset includes stocks, bonds, inflation, hedges, and cash.
Rebalance regularly. Keep it simple enough that you'll actually follow it.

(05:32):
And as always, this is not investment advice. You're responsible
for your own strategy. This podcast is here to give
you frameworks, not answers. If you found this helpful, follow
the show, leave a quick review, and share it with
someone who's still one hundred percent in tech stocks. They'll
thank you in the next bear market. In the next episode,

(05:52):
we're going to talk about asset location, not what you
invest in, but where you hold it and how that
affects your taxes, performance and fl flexibility. Until then, stay smart,
stay patient, and stay invested. H