A retirement portfolio refers to long-term investments whose goal of achieving strong annualized returns for the long term. People create retirement portfolios so that they can have a nice nest egg when they retire. 

The average retirement age in the US is about 65 years, while the life expectancy rate is about 77 years. Therefore, a good retirement portfolio should be able to cover your basic needs for about 12 years after you retire. Let us look at how you can create an all-weather portfolio.

What is an all-weather portfolio?

An all-weather portfolio refers to one that is designed to do well in all market conditions, such as when the market is doing well and when it is in crisis. The concept of an all-weather portfolio has been around for decades. A look at the history of the financial market shows that many investors had embraced the approach. 

Still, the concept is widely known because of Ray Dalio, who runs the biggest hedge fund in the world. His team at Bridgewater Associates came up with the idea in 1996. You can read the comprehensive white paper that Dalio and his colleagues came up with when developing the approach here. In short, the fund’s all-weather portfolio allocates 70% of the capital in beta and 30% in alpha assets.

While Dalio’s approach to a diversified portfolio that does well over time seems complex, it is possible for an ordinary person to create a well-diversified portfolio that does well over time. Also, historically, there is no portfolio that does well in all market conditions. Dalio has underperformed his peers in many years.

The traditional approach to portfolio creation

The traditional approach to retirement portfolio creation is relatively simple. Advisors recommend that investors create a portfolio made up of bonds and stocks depending on their risk appetite. 

The most conservative investors allocate about 60% of their portfolio in stocks while the rest allocate it in bonds. This happens because stocks do better than bonds in the long term. At the same time, bonds allocation is used to hedge against market risks since they are often viewed as being better investment assets.

On the other hand, the most aggressive investors allocate more than 70% of their assets in stocks and the rest in bonds. Other investors invest part of their funds in stocks, bonds, and the remaining in alternative assets like real estate, cryptocurrencies, and peer-to-peer market places.

The all-weather portfolio

Ideally, a retirement portfolio should basically be able to provide you with substantial and safe returns over the years. Therefore, we recommend that you create a fund that embraces exchange-traded funds (ETFs).

For starters, an ETF is a financial product created by combining tens, hundreds, or even thousands of assets. The fund is offered by some of the biggest financial companies in the world like Fidelity, Blackrock, Schwab, and State Street. They are then listed in the leading exchanges like the New York Stock Exchange (NYSE) or Nasdaq. Once listed, the funds can be bought and sold like normal stocks.

There are several benefits of investing in an ETF instead of individual stocks. First, ETFs provide a lot of diversification than normal stocks. Second, they lower the overall cost of investing. Third, you can invest in ETFs in your preferred sector. For example, you can invest in an ETF that tracks semiconductors instead of buying shares of a single semiconductor company. Finally, the funds have more tax benefits than investing in individual stocks.

Therefore, we suggest a situation where you allocate funds in ETFs that track value, growth, and dividend stocks. In the same basket, you should allocate your funds to ETFs that track high-grade and high-yield bonds. 

Vanguard Growth ETF (VUG) (40%)

Growth companies refer to companies that are seeing substantial growth rates. Think of companies like Tesla, Shopify, Square, and Teladoc. Most growth companies provide returns in the form of shares appreciation since they are in their early days of formation. Most of them do not pay dividends.

VUG ETF weekly chart

The Vanguard Growth Fund is one of the biggest ETFs that track these growth companies. Some of the companies in this fund are Apple, Microsoft, Amazon, Facebook, Nvidia, and Tesla. It has an expense ratio of 0.04%. The benefit of investing in this fund is that growth stocks tend to appreciate in value more than value stocks.

Vanguard dividend appreciation fund (VIG) (30%)

As you possibly know, stocks generate returns through share appreciation and dividends. The growth fund we mentioned is mostly geared towards stock returns. Therefore, you should allocate about 30% of your funds to a dividend-yielding ETF. Doing so will ensure that you get steady dividends every quarter or year. While there are several dividend funds, we recommend investing in VIG because of its low expense ratio.

VIG ETF weekly chart.

VIG tracks some of the biggest companies that are growing their dividends. Some of the key companies in this fund are Microsoft, Johnson & Johnson, Walmart, UnitedHealth Group, and Visa. This fund will make you money through stock appreciation and stable dividends.

Vanguard High-Yield Dividend ETF fund (VYM) (10%)

There are several types of dividends. In terms of yield, there are high-yield and investment-grade funds. High-yield is made of companies that are facing some financial difficulty, while investment-grade are those that have a good rating from rating agencies like Moody’s and Fitch. 

Having exposure to high-yield companies is a good thing because of their supersize returns. We believe that the Vanguard High-Yield Dividend Fund is a good option. It is made up of firms like JP Morgan, Home Depot, Cisco, Intel, and Verizon. 

VYM weekly chart.

Finally, you should allocate the remaining funds of your portfolio in government and corporate bonds. This should form the smallest part of your retirement portfolio because bonds tend to have a smaller return than equities.


This article has explained the meaning of an all-weather retirement portfolio. We have also looked at the benefit of creating such a fund. Finally, we looked at an example of how to create such a fund using ETFs that have different characteristics.