The division of a portfolio across different asset classes — equities, bonds, cash, real assets — to balance expected return against risk over time.
Deeper Explanation
Dalio's research found that asset allocation explains approximately 90% of portfolio return variability — stock selection explains roughly 10%. Most investors spend 90% of their effort on the 10% that matters less. The optimal allocation depends on the economic environment: rising growth and falling inflation favour equities; falling growth and rising inflation favour commodities; falling growth and falling inflation favour bonds. Dalio's All-Weather Portfolio attempts to hold the right assets for all four environments simultaneously through risk-parity weighting.
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