Megaphone icon ETF Database is now VettaFi. Read More >
ETFdb Logo
ETFdb Logo
  • ETF Database
  • Channels
    • Active ETF
    • Alternatives
    • Beyond Basic Beta
    • China Insights
    • Climate Insights
    • Commodities
    • Core Strategies
    • Crypto
    • Disruptive Technology
    • Dividend
    • Dual Impact
    • Emerging Markets
    • Energy Infrastructure
    • ESG
    • ETF Building Blocks
    • ETF Education
    • ETF Strategist
    • Fixed Income
    • Free Cash Flow
    • Future ETFs
    • Global Diversification
    • Gold & Silver Investing
    • Innovative ETFs
    • Institutional Income Strategies
    • Leveraged & Inverse
    • Managed Futures
    • Modern Alpha
    • Multi-Asset
    • Portfolio Strategies
    • Retirement Income
    • Thematic Investing
    • Volatility Resource
  • Tools
    • ETF Screener
    • ETF Country Exposure Tool
    • ETF Sector Tracker Tool
    • ETF Database Categories
    • Head-To-Head ETF Comparison Tool
    • ETF Stock Exposure Tool
    • ETF Issuer Fund Flows
    • Indexes
    • Mutual Fund To ETF Converter
    • ETF Data for Journalists
    • ETF Nerds
  • Research
    • First Bitcoin ETF
    • ETF Education
    • Equity Investing
    • Dividend ETFs
    • Leveraged ETFs
    • Inverse ETFs
    • Top ETF Sectors
    • Top ETF Issuers
    • Top ETF Industries
  • Webcasts
  • Themes
    • AI ETFs
    • Blockchain ETFs
    • See all Thematic Investing ETF themes
    • ESG Investing
    • Marijuana ETFs
  • Videos & Podcasts
    • ETF 360 Video Series
    • ETF Trends on Videos
    • ETF Trends on Podcasts
    • ETF Prime Podcast
  • PRO
    • Pro Content
    • Pro Tools
    • Advanced
    • FAQ
    • Pricing
    • Free Sign Up
    • Login
  1. ETF Investing
  2. The Low-Risk “All-Weather” Portfolio
ETF Investing
Share

The Low-Risk “All-Weather” Portfolio

Joel KrancOct 20, 2015
2015-10-20

Creating a properly diversified portfolio can be a difficult proposition, especially when interest rates have remained historically low for some time. Now, suppose an investor is interested in that same diversified portfolio but would also like it to outperform in down markets. That’s certainly a tall order.

Exchange-traded funds (ETFs) are one way to provide that diversification while reducing costs compared to other investments. Unlike mutual funds, ETFs will trade like stocks on an exchange and will fluctuate throughout the day. Their lower-than-mutual-fund fee structures make them attractive to investors. ETFs can track nearly any market, from commodities to bonds and stocks, providing extra diversification.

Asset Allocation

Ray Dalio, founder of the investment firm Bridgewater Associates (and one of Time Magazine’s top 100 most influential people in 2012), created a portfolio that can weather almost any storm – because, as he puts it, you never know the environment your portfolio will be facing. In an interview that appeared in Tony Robbins’ book MONEY Master the Game: 7 Simple Stapes to Financial Freedom, Dalio suggested the following allocation for his all-weather strategy:

  • 30% Stocks
  • 40% Long-Term Bonds
  • 15% Intermediate-Term Bonds
  • 7.5% Gold
  • 7.5% Commodities

Content continues below advertisement

All-Weather Portfolio Asset Allocation

Amazingly, over a 30-year period that portfolio would have earned 9.7% annually and would have made money 86% of the time. The correlation between all these investments and their risk strategy is that no one asset class holds a majority of the investments or asset types. In other words, even with bonds holding 55% of the portfolio that still leaves a big chunk of investments to seek out higher risk-reward outcomes with different investments. Bonds are there to smooth out the rough equity years but will not be a huge drag on the rest of the portfolio during bull markets.

Allocation Examples

As mentioned earlier, there are a number of ETFs to satisfy the investor interested in a diversified portfolio. For example SPDR ETFs use the S&P 500 Index as their benchmark. The SPDR S&P 500 ETF (SPY A), for example, has top holdings such as Apple (AAPL), Microsoft (MSFT), Exxon Mobile (XOM), General Electric (GE) and Johnson & Johnson (JNJ). Since its inception in 1993, the ETF has earned an annualized return of 8.75%. Over the past three years it has annualized 12.27%. These returns are as of September 30, 2015.

Vanguard also has a number of diversifying ETFs. Its FTSE Emerging Markets Index ETF (VEE) tracks the FTSE Emerging Markets Index. The part of the portfolio with the most holdings is delegated to financial services, with 30.60%, and technology at 11.90%. Geographically, the bulk of its holdings are in China, Taiwan and India. Over the past three years, this ETF has earned 4.98%, but over the past year has lost 3.09% due to the severe fluctuations in the market. These returns are as of September 30, 2015.

These two ETFs can be used to gain exposure to the equity section of the all-weather portfolio.

  • To gain exposure to gold, an ETF such as the SPDR Gold Shares (GLD A-) can be used.
  • Similarly, for commodity exposure, the iPath Bloomberg Commodity Index Total Return ETN (DJP A-) can be used.
  • For long-term bond exposure, the iShares 20+ Year Treasury Bond ETF (TLT B+) can be used.
  • For intermediate-term bond exposure, Schwab Intermediate-Term US Treasury ETF (SCHR A) can be used.
  • Or you can also have exposure to corporate bonds, instead of these “safe havens”.

More ETFs can be found in our screener, where you can pick your own gold, commodity, bond, and equity exposure using ETFs.

One thing to consider when diversifying a portfolio and using ETFs versus mutual funds is that because they can be traded on a daily basis, they are not the average “passive” investment. They are more convenient, liquid and have lower costs than mutual funds.

The Bottom Line

Overall, there are different ways investors can diversify their portfolios – with straight equities, mutual funds, ETFs and a combination of any of those. The trick is to ensure you know what you want out of your investment. ETFs, because of their stock-like characteristics but low costs, create a nice balance for investors seeking to achieve lower-risk, high-reward portfolios. Simple “all-weather” strategies like the one mentioned above can help sustain and grow assets in the long run while at the same time keep afloat in down markets.

Image courtesy of hywards at FreeDigitalPhotos.net

» Popular Pages

  • Tickers
  • Articles

Aug 18

Fast Money: Tom Lydon Talks Single-Stock ETFs

Aug 18

Meb Faber and Jim Bianco Talk Markets and the Economy

Aug 18

Dave Nadig Talks Clean Energy, Memes on Yahoo Finance

Aug 18

SESG Offers Transparency and Sustainability to Gold

Aug 18

AZTLAN Seeks Stocks in Global Developed Markets

Aug 18

Inflation Reduction Act Is Great for Clean Energy ETFs

Aug 18

Investing in ESG With This Free Cash Flow ETF

Aug 18

Shorten Duration While the Fed Extends Rate Hikes

Aug 18

The RGGI Carbon Market Performs Despite Uncertainty

Aug 18

ACES Increases 33% in Past Month as Clean Energy Rebounds

QQQ

Invesco QQQ Trust

DRLL

Strive U.S. Energy ETF

SPY

SPDR S&P 500 ETF Trust

VOO

Vanguard S&P 500 ETF

SCHD

Schwab US Dividend Equity ETF...

VTI

Vanguard Total Stock Market...

JEPI

JPMorgan Equity Premium...

ICLN

iShares Global Clean Energy...

VYM

Vanguard High Dividend Yield...

VNQ

Vanguard Real Estate ETF

Loading Articles...
Help & Info
  • Contact Us
  • Mission Statement
  • Press
Tools
  • ETF Screener
  • ETF Analyzer
  • Mutual Fund to ETF Converter
  • Head-To-Head ETF Comparison
  • ETF Country Exposure Tool
  • ETF Stock Exposure Tool
  • ETF Performance Visualizer
  • ETF Database Model Portfolios
  • ETF Database Realtime Ratings
  • ETF Database Pro
More Tools
  • ETF Launch Center
  • Financial Advisor & RIA Center
  • ETF Database RSS Feed
Explore ETFs
  • ETF News
  • ETF Picks of the Month
  • ETF Category Reports
  • Premium Articles
  • Alphabetical Listing of ETFs
  • Best ETFs
  • Browse ETFs by ETF Database Category
  • Browse ETFs by Index
  • Browse ETFs by Issuer
  • Compare ETFs
Legal
  • Terms of Use and Privacy Policy
  • © ETF Flows LLC
Follow ETF Database
Follow ETF Database

Advertisement

Is Your Portfolio Positioned With Enough Global Exposure?

ETF Education Channel

How to Allocate Commodities in Portfolios

Tom LydonApr 26, 2022
2022-04-26

A long-running debate in asset allocation circles is how much of a portfolio an investor should...

Core Strategies Channel

Why ETFs Experience Limit Up/Down Protections

Karrie GordonMay 13, 2022
2022-05-13

In a digital age where information moves in milliseconds and millions of participants can transact...

}
X