All-Weather Portfolio for Canadians 2025

Updated March 2025 · 11 min read

The All-Weather Portfolio is a concept popularized by legendary hedge fund manager Ray Dalio of Bridgewater Associates. The idea is to build a portfolio that performs reasonably well across all economic environments — growth, recession, inflation, and deflation — by balancing assets that thrive in each scenario. This guide explains the All-Weather concept and how Canadians can implement it using low-cost ETFs.

The Four Economic Environments

Dalio's framework identifies four possible economic states, each favoring different assets:

• Rising growth: Stocks and commodities perform well
• Falling growth: Bonds (especially long-term) and gold perform well
• Rising inflation: Commodities, inflation-linked bonds (TIPS/RRBs), and gold perform well
• Falling inflation (deflation): Long-term bonds and stocks perform well

By holding assets from each quadrant in balanced proportions, the portfolio reduces dependence on any single economic outcome. When one asset class suffers, others partially offset the loss.

The Classic All-Weather Portfolio Allocation

Dalio's simplified All-Weather portfolio (designed for individual investors) uses the following allocation:

• 30% stocks — Broad equity exposure
• 40% long-term bonds — 20–30 year government bonds
• 15% intermediate bonds — 7–10 year government bonds
• 7.5% gold — Inflation hedge and safe haven
• 7.5% commodities — Broad commodity exposure

The heavy bond weighting (55% total) reflects Dalio's risk-parity approach: bonds have lower volatility than stocks, so to achieve equal "risk contribution" from each asset class, bonds must be held in larger quantities by dollar value.

Building an All-Weather Portfolio with Canadian ETFs

Here is a practical All-Weather implementation for Canadians using low-cost ETFs:

Equity Component (30%)

• XEQT or VGRO — Global equity (or use XIC + XUU + XEF combination)

Long-Term Bond Component (40%)

• XLB — iShares Core Canadian Long-Term Bond ETF. Focuses on 10+ year government and investment-grade corporate bonds. MER: 0.20%
• ZFL — BMO Long Federal Bond Index ETF. Pure Government of Canada long bonds. MER: 0.22%

Intermediate Bond Component (15%)

• VAB or ZAG — Broad Canadian aggregate bond ETF (blended duration ~7 years). MER: 0.09%

Gold Component (7.5%)

• CGL.C — iShares Gold Bullion ETF (CAD-hedged). Physical gold backed. MER: 0.55%
• KILO — Sprott Physical Gold ETF. MER: 0.35%

Commodities Component (7.5%)

• CBR — iShares S&P GSCI Commodity-Indexed ETF. Broad commodity exposure. MER: varies
• Alternatively: Energy sector ETF or Canadian natural resources ETF as a commodities proxy

All-Weather Portfolio: Historical Performance

The All-Weather portfolio has historically delivered strong risk-adjusted returns — meaning good returns relative to the volatility experienced. Backtesting shows it performed well during the 2008–09 financial crisis (heavy bonds cushioned equity losses) and provided modest positive returns during most inflationary periods. However, during the 2022 rate-hike cycle, the All-Weather portfolio suffered significant losses because both stocks and long-duration bonds fell simultaneously — a rare scenario that tested the strategy's limits.

All-Weather vs. Traditional Balanced Portfolio

Compared to a standard 60/40 equity/bond portfolio, the All-Weather portfolio:

• Has historically lower maximum drawdown (smaller worst-case losses)
• Has historically lower long-term returns (the heavy bond weighting drags on growth)
• Performs better during deflationary recessions due to long bond holdings
• Underperforms during strong bull markets (limited equity exposure)
• Adds complexity (5 asset classes vs. 2) and requires more rebalancing

A Simplified Canadian All-Weather Approach

For investors who find the five-asset approach complex, a simplified version:

• 40% XBAL or VBAL (60/40 equity/bond all-in-one ETF)
• 30% XLB (long-term bonds)
• 15% CGL.C (gold)
• 15% XIC or VCN (Canadian equities with commodity exposure via energy/materials)

Rebalance annually. This captures the spirit of the All-Weather approach in four holdings.

Tax Considerations

The All-Weather portfolio's bond-heavy nature means significant interest income, which is fully taxable at marginal rates. Hold as much of the bond and gold allocation as possible inside registered accounts (TFSA or RRSP) to shield this income. Equity ETFs can be held in non-registered accounts where gains are taxed more favourably as capital gains.