Want to navigate through bull and bear markets? Learn about Bridgewater's "All Weather Strategy."

This year, impacted by Trump's tariff policy, the stock and bond markets have intensified volatility, and investments have been fluctuating like a roller coaster. It makes one wonder if there is an investment strategy that can cleverly avoid the firepower circle and achieve stable happiness without timing the market.

The answer is: Bridgewater's All Weather Strategy seems to be a wise choice!

What is the All Weather Strategy?

The "All Weather Strategy" is a revolutionary asset allocation method proposed by Bridgewater founder Ray Dalio, whose core idea is to achieve stable appreciation in any economic environment, including growth, recession, inflation, and deflation, by scientifically combining various asset types. Compared to the traditional 60/40 stock-bond combination, the biggest feature of the All Weather Strategy is that it does not rely on market predictions, but instead traverses economic cycles through risk-balanced allocation.

This strategy was born in 1996 and gained fame during the 2008 financial crisis—when the S&P 500 plummeted by 37%, the All Weather portfolio only declined by 3%, demonstrating remarkable risk resilience. According to Bridgewater data, from 1970 to 2020, the annualized return of the All Weather Strategy reached 9.5%, with only one-third the volatility of traditional stock portfolios.

Why can the All Weather Strategy traverse bull and bear markets and perform well in any environment? No rush, let's first understand the construction logic of All Weather.

Where did the All Weather Strategy come from?

Bridgewater believes that there is a wide variety of investment products in the market, but the returns of any product can be boiled down to three factors: cash return rate, excess return above cash rate (beta), and the inclination or stock selection of fund managers (alpha).

In summary: ROI = Cash + Beta + Alpha.

For most investors, Alpha is spirit and game; if you Buy, I Sell, only one of us is right. Therefore, the key to profitability lies in the asset allocation of Beta, focusing on determining the holding proportions of Assets such as Stocks, Bonds, and Commodities to ensure that the portfolio is sufficiently reliable.

There are two key concepts here: environmental preference and risk rebalancing assets.

Dalio believes that Bonds perform best during deflationary recession periods, Stocks perform best during economic growth periods, and Cash is most attractive during tight liquidity. In other words, all Assets have environmental preferences; they perform well in certain environments and poorly in others.

Therefore, if investors hold Stocks, they face the risk of economic growth falling below market expectations. To hedge against this risk, it is necessary to pair Stocks with another Asset that will rise when Stocks fall, with an increase roughly equivalent to the decline in Stocks. According to Bridgewater's operational thinking, they adjust the asset ratios or use leverage, so that the risks of different asset classes tend to be similar, converting low-risk/low-return into high-risk/high-return, avoiding the sacrifice of investment returns for diversification.

For example, if you invest $10 to Buy the S&P 500 ETF and another $10 to Buy U.S. Bonds, then the risk of the portfolio will be primarily determined by the S&P 500 Index, as its risk is far higher than that of Bonds.

If you invest $5 to Buy the S&P 500 ETF and another $15 to Buy U.S. Bonds, the portfolio will be more balanced, but the ROI will decrease.

If you invest $5 and $15 as described above and add some leverage, then the ROI of the portfolio will be the same as that of Stocks, but with lower risk.

Based on the key concepts above and decades of accumulated experience, Dalio and his team founded the All Weather Fund in 1996, ultimately forming a true Assets allocation plan, which is the All Weather investment strategy.

Initially, this strategy did not receive much attention until the stock market crash of 2000, when everyone began to realize that stock investments could not guarantee success. The All Weather strategy gradually gained recognition in the market and has been praised ever since.

How to construct the All Weather strategy?

Dalio believes that the two Indicators, economic growth and inflation level, have the greatest impact on the economy. Based on the relative relationship between the actual values of economic growth (Growth) and inflation (Inflation) and the market expectation values (Market Expectation), he drew a four-quadrant chart corresponding to four macroeconomic states: economic expansion, economic contraction, inflation rising, and inflation falling.

Therefore, under different macroeconomic states, there will be different suitable Assets.

All-weather strategy allocation ratio.

It is worth noting that the risk of the asset portfolio in each quadrant is 25%, and this 25% risk is equally distributed among each asset, ultimately resulting in the risk weights and allocation ratios for each asset.

However, for most investors, calculating the risk weights and allocation ratios for each asset can be quite troublesome. We can directly refer to a set of empirical values given by Dalio during an interview for reference use.

Of course, in addition to this basic allocation, some advanced investors also include Cryptos in their portfolios to balance the overall investment returns. The following allocation ratios can be used as a reference (risk disclaimer: unofficial allocation reference, investors should use it cautiously to avoid unnecessary losses).

How can ordinary investors apply it?

Before applying the "All-Weather Strategy," we must clarify its core idea, which is: we do not know what the economic cycle will be in the future, nor do we know how the assets will perform in the future, so we need to choose a good, reliable, and long-term balanced investment strategy to hold for the long term to reap returns.

Summarized some key points for everyone to help maintain our original investment intentions.

Step 1: Believe that the four risk-equal portfolios of the "All-Weather Strategy" can perform well in specific environments.

Step 2: Avoid the pitfall of "overconfidence" by overly optimizing the all-weather investment strategy.

Step 3: Avoid the misconception of "absolute capital preservation". An all-weather investment strategy still involves risk assets, and there will inevitably be drawdowns.

Step 4: Avoid the misconception of "short-term results". It takes 3-5 years to realize the advantages.

Step 5: Avoid the misconception of "one-time effort". There is a need for dynamic adjustment of asset correlation.

Of course, if one is an investor pursuing short-term high profits or has a strong attachment to a single asset, this strategy may not be suitable. Investing is inherently diverse, and it is important to stick to one's principles.