Hello, YieldAlley readers! In this issue:

🧓 Does Financial Literacy Decline with Age? (UPenn Wharton)

🛣️ JL Collins: The (Still) Simple Path to Wealth (Morningstar)

💸 Who benefits most from the state and local tax deduction (CNN)

🐻 Bear market Guidebook (UBS)

🤯 What Should We Do With Bonds and Cash in a Crazy Market? (Two Sides Of FI)

Continuing our exploration of lazy portfolios, this week we turn to Ray Dalio's All Weather Portfolio. While Harry Browne's Permanent Portfolio seeks equal protection across four economic conditions, Dalio's approach balances risk rather than just capital across different asset classes.

The All Weather Portfolio represents sophisticated yet accessible risk parity investing. Unlike traditional 60/40 portfolios that allocate by dollar amount, Dalio's strategy recognizes that such allocations create portfolios where stocks contribute the vast majority of risk. The All Weather approach instead balances risk contribution from each asset class.

This past month, State Street Global Advisors launched the SPDR Bridgewater All Weather ETF (ALLW), marking the first time everyday investors can access Bridgewater's legendary strategy in a single ETF. This transforms what was once available only to institutional investors into an accessible retail option.

Ray Dalio developed the All Weather Portfolio in the mid-1990s to protect his family's wealth across decades of unknown economic conditions. As founder of Bridgewater Associates, Dalio witnessed how traditional diversification often fails during crises when correlations between asset classes increase.

The strategy is built on three core principles:

Assets appreciate over time: Despite short-term volatility, most asset classes generate positive returns over long periods.

No asset class dominates forever: Leadership rotates among investments depending on economic conditions.

The future is unpredictable: Rather than betting on any scenario, the portfolio should be prepared for multiple possibilities.

Dalio's framework focuses on two key drivers creating four combinations:

Economic Growth: Can be higher or lower than expected

Inflation: Can be higher or lower than expected

These create four environments:

The All Weather Portfolio holds assets that perform well in each scenario, with risk allocated roughly equally across all four quadrants.

The All Weather Portfolio consists of:

This allocation is designed around risk contribution rather than dollar allocation. While stocks represent only 30% by dollars, their higher volatility means they contribute roughly 25% of total portfolio risk, equal to other major components.

The heavy bond weighting (55% total) reflects their lower volatility, allowing significant growth exposure while keeping overall volatility manageable.

This past month’s ALLW launch represents a watershed moment for individual investors. The fund, with a 0.85% expense ratio, uses leverage to achieve target risk allocation across global markets. Unlike simplified versions, ALLW reflects Bridgewater's full institutional approach with global diversification, currency hedging, strategic leverage, and daily rebalancing.

Currently, the ETF holds approximately 72% global nominal bonds, 32% inflation-linked bonds, 43% global stocks, and 37% commodities (percentages exceed 100% due to leverage).

Risk-averse long-term investors: Those prioritizing wealth preservation over maximum returns.

Retirement-focused investors: Those needing portfolios to perform reasonably well regardless of economic conditions.

Set-it-and-forget-it investors: Those preferring systematic, rules-based strategies over active management.

Inflation-concerned investors: The portfolio's built-in inflation hedges appeal to those worried about purchasing power erosion.

Through April 2025, inflation-protected securities have outperformed broader bond markets, suggesting the All Weather Portfolio's inflation hedges provide value. Over longer periods, simplified versions have delivered 7-9% annual returns with significantly lower volatility than stock-heavy portfolios.

The strategy's strength lies not in delivering highest returns during bull markets, but in avoiding catastrophic losses during bear markets. During 2008, when stocks declined over 30%, All Weather-style portfolios typically experienced much smaller losses or modest gains.

Opportunity cost during bull markets: The 30% stock allocation means underperformance during extended bull markets.

Bond interest rate risk: Significant long-term bond allocation creates interest rate exposure. Current 10-year TIPS breakeven inflation rate is 2.3%.

Commodity volatility: While providing inflation protection, commodities can be extremely volatile with poor long-term real returns.

Tax inefficiency: TIPS create "phantom income" taxed annually despite principal adjustments not received until maturity. Rebalancing generates taxable events.

Higher fees: ALLW charges 0.85%, significantly higher than simple index funds.

SPDR Bridgewater All Weather ETF (ALLW): Simplest option with professional management, though at a higher cost due to the expense ratio.

DIY approach using low-cost ETFs:

Modified approaches: Some replace commodities with utilities or REITs, or use TIPS instead of nominal bonds.

The portfolio requires periodic rebalancing when asset classes deviate significantly from targets. Most practitioners suggest quarterly or annual rebalancing, forcing systematic "buy low, sell high" behavior. ALLW handles this automatically; DIY investors must monitor and rebalance while considering tax implications.

Ray Dalio's All Weather Portfolio represents one of the most thoughtful approaches to long-term portfolio construction. By focusing on risk allocation rather than dollar allocation, it creates balanced exposure to different economic environments.

The ALLW launch makes this sophisticated approach accessible to everyday investors, though at a cost premium. For investors prioritizing wealth preservation or seeking systematic uncertainty management, the All Weather Portfolio offers a compelling alternative to traditional strategies.

As Dalio notes, the goal isn't achieving the highest possible returns, but good returns while avoiding devastating losses. In a world of increasing economic uncertainty, this philosophy may prove particularly valuable for compounding wealth steadily regardless of economic weather ahead.

The All Weather Portfolio won't win performance contests during bull markets, but it's designed to keep you in the game through all markets.

Government Money Market Funds (7-Day Yields)

Brokered CD Rates (6-Month Rate)

ETFs (30-Day Yields)

US Bank has relaunched their checking account promotion with updated bonus tiers and more flexible eligibility requirements for new customers.

This improved offer provides excellent value with lower direct deposit requirements and shorter waiting periods between bonuses. The $6.95 monthly fee is easily waivable with $1,000 in monthly direct deposits or maintaining a $1,500 average balance, making this accessible for most banking needs.