Ray Dalio's Bridgewater strategy designed to perform acceptably across all economic environments — built around risk parity across four economic quadrants.
Deeper Explanation
Dalio observed that most portfolios are heavily concentrated in economic risk: they perform well in growth/low-inflation environments but are devastated by inflation or recession. The All Weather approach allocates risk (not capital) equally across four economic environments: growth up, growth down, inflation up, inflation down. The resulting portfolio is highly diversified across asset classes: equities, long-term government bonds, commodities, gold, and inflation-linked bonds. The key insight: correlations between assets change dramatically across economic environments, making true risk diversification very different from simple asset class diversification. The All Weather portfolio is designed to avoid catastrophic loss in any environment at the cost of below-market returns in bull markets.
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