How to Build a Portfolio That Survives and Thrives Through Any Market Chaos

Is This the Toughest Portfolio You’ll Ever Meet? Unpacking the All-Weather Portfolio for Indian Investors and Why You Need an “All-Weather Portfolio”

In a world where market crashes and economic meltdowns are more common than ever, investors are constantly on the lookout for a strategy that provides resilience and steady growth. What if I told you there exists a portfolio strategy designed to survive through financial crises, market volatility, and even economic downturns?

If you’ve been managing your wealth in India’s dynamic financial landscape—think Nifty 50 rallies, volatile monsoons impacting agri-stocks, or global shocks like the 2020 pandemic—you know one thing for sure: markets are unpredictable. In the bustling financial markets of Mumbai and across India, where volatility can strike like a monsoon storm, the question isn't if a crash will happen, but when.  As the founder of wealth management firm, I’ve seen clients ride the highs of Sensex booms and sweat through sudden crashes. But what if there was a portfolio so tough it could survive anything—stagflation, recessions, or even a nuclear market meltdown? (ok, we are clearly exaggerating here!)

Welcome to the All-Weather Portfolio – a robust, all-weather investment approach that focuses on survival first, growth second. Inspired by the adaptability and resilience, this portfolio aims to offer consistent returns with minimal risk, even when the financial world seems to be collapsing. The All-Weather Portfolio is designed to thrive in any economic environment—growth, decline, inflation, or deflation.

In this blog, I’ll break it down for investors, showing you how to adapt this global concept to our unique market realities. Whether you’re sipping chai in South Bombay or tracking the Nifty from a suburban high-rise, this could be the game-changer your portfolio needs.

Let me introduce you to a concept that might sound unconventional, even a bit unsettling, but could be your portfolio's best defence: the "All-Weather Portfolio"

What Exactly is an All-Weather Portfolio?

The All-Weather Portfolio is an investment strategy that emphasizes extreme diversification and risk management. It aims to provide stable returns regardless of economic conditions, by spreading investments across various uncorrelated asset classes. It’s about playing defence first and ensuring that even in the worst-case scenarios, your wealth is protected.

Cockroaches aren’t glamorous, but they’re survivors. They’ve outlasted dinosaurs, ice ages, and even pest control! The All-Weather Portfolio takes this idea and applies it to investing: build a portfolio that’s hard to kill and grows steadily over time, no matter what the economy throws at it. It’s a “set it and forget it” strategy that balances Risk On (growth assets) and Risk Off (protective assets) to maximize long-term wealth while minimizing short-term panic.

Key Principles of the All-Weather Portfolio

1. Diversification Across Asset Classes:

   The portfolio is constructed by investing in asset classes that respond differently to various market conditions.

   
   

2. Non-Correlation:

   Investing in assets that don’t move in the same direction at the same time reduces overall portfolio risk.

   
   

3. Consistent Rebalancing:

   Regularly adjusting the portfolio to maintain desired risk levels and asset allocation.

This investment strategy is designed to survive and even thrive in the harshest financial environments. Unlike traditional portfolios that focus solely on growth during bull markets, the All-Weather Portfolio prioritizes survival and adaptability. The core idea is to build a portfolio that can withstand various economic shocks, including inflation, deflation, recessions, and even black swan events.

Why India Needs the All-Weather Portfolio More Than Ever

India’s economic journey is a rollercoaster. We’ve got a booming tech sector, but also monsoon-dependent agriculture. RBI’s tightrope walk between growth and inflation keeps us guessing. And let’s not forget global headwinds—US Fed rate hikes or China slowdowns ripple here fast.

In India, where we’ve seen everything from the 1991 liberalization boom to the 2008 global crisis and the 2022 inflation spike, this resilience is gold. The portfolio doesn’t try to predict whether the RBI will hike rates or if the monsoon will tank rural demand—it prepares for all possibilities.

Traditional portfolios—like the 60/40 stock-bond mix—work well in stable climates. But 2022 showed us their limits: stocks dipped, and rising rates hit bonds too. The All-Weather Portfolio flips the script by adding Risk Off assets (cash and commodities) alongside Risk On ones (stocks and bonds). It’s like having a raincoat and an umbrella for unpredictable downpours.

India's economic landscape is a unique blend of high growth potential and inherent volatility. We face challenges like fluctuating inflation, geopolitical risks, and the unpredictable nature of global markets. The All-Weather Portfolio is particularly relevant because it acknowledges these uncertainties and provides a framework for navigating them.

How to Build an All-Weather Portfolio

The All-Weather Portfolio is built on a four-quadrant model, each tied to a major economic regime. Global Investment Managers design of All-Weather Portfolio uses global stocks, bonds, and US-specific tools like volatility futures. Here’s how we can tweak it for India:

Think of it like a diversified thali—each section has a purpose, and together they make a complete meal. Here’s how it works, with an Indian twist:

1. Stocks (Growth)

- What It Does: Thrives when the economy is growing—think rising GDP, corporate earnings, and bullish markets. 

- Indian Context: This is your exposure to the Nifty 50, Sensex, or mid and small cap gems. India’s growth story—urbanization, digitization, and a young workforce—makes stocks a no-brainer for the long haul.

- Risk: Crashes like 2008 or 2020 (or 2024-25) can wipe out gains if you’re overexposed.

2. Income (Deflation)

- What It Does: Shines in deflationary times when prices fall, and debt becomes more valuable. 

- Indian Context: Government bonds (G-Secs), corporate bonds, or fixed deposits (FDs) fit here. With India’s 10-year G-Sec yields hovering around 6-7% (as of March 2025), this offers stability when stocks tank. 

- Example: Long Duration Government Bonds or AAA-rated corporate bond funds. 

- Risk: Rising inflation (hello, 2022!) erodes real returns.

3. Commodity Trend (Inflation)

- What It Does: Profits when inflation spikes, driving up commodity prices. 

- Indian Context: India’s inflation often ties to food and fuel—think onions hitting ₹100/kg or crude oil shocks. Commodity trend-following strategies (like futures or ETFs) can capture this. Gold, a desi favourite, also plays a role here. 

- Example: Physical Gold/Silver or ETFs (Trending positions* in commodities market for savvy investors)

- Risk: Requires active management or access to derivatives to take full advantage of the strategy, which isn’t everyone’s cup of tea.

*Trending positions are taken in basket of commodities based on technical parameters. Investor takes both long and short positions based on trend and stays in cash when there is no clear trend.

4. Volatility (Decline)

- What It Does: Protects during sharp market drops by betting on chaos. 

- Indian Context: This is trickier in India since we don’t have direct equivalents to US-style long volatility funds*. However, options strategies on the Nifty or cash reserves can mimic this. Think of it as your emergency fund on steroids. 

- Example: Holding a Liquid fund (Maybe derivatives trade, only if you understand risks involved)

- Risk: Costs money during calm markets—patience is key.

*Long Volatility Funds take derivatives positions in the market to profit from volatility in market in exchange for cost of carry during calm markets.

Each quadrant gets roughly 25% of your portfolio, creating a balance that doesn’t bet on any single outcome. No crystal ball needed!

(For savvy investors, read appendix below)

The Math: How It Stacks Up

Let’s stress-test this. Back testing isn’t perfect, but data shows the All-Weather Portfolio outperforming in tough times.

Based on above data, one may think, “I want best long-term performance, so I should invest in Equity and maybe Gold.”

Well, what happens when we combine all three and cash into an equally weighted portfolio and rebalance it annually.

The combination of the three does something pretty cool. It performs better than the best performing individual asset — Equity. Stocks and Gold have the higher returns over this period. Bonds have the lowest return of the three assets, so it would seem like adding it would decrease the overall performance. However, it actually increased it!

Even though its return was lower, because gold’s path was complementary — it performed well in a couple of periods where one or both of the other assets struggled — it improved the portfolio meaningfully.

This is the key lesson we took from the All-Weather Portfolio: Adding a lower-returning asset with a complementary (AKA uncorrelated) path can improve the overall portfolio.

In India, imagine 2020: Nifty crashed 24%, but gold surged 38% that year. A balanced All-Weather Portfolio mix softened the blow with portfolio returning positive 7%. Over 30 years, stocks might give 12-15% CAGR in India, but with wild swings. The All-Weather Portfolio aims for 10-12% with lower volatility and drawdowns—think steady compounding vs. a heart-attack ride.

Why All-Weather Portfolio Works in Indian Context

1. High Market Volatility:

   The Indian market is known for its ups and downs. A diverse portfolio can help weather the storms.

   
   

2. Inflation Concerns:

   With inflation often eating into returns, having assets like gold and equity can act as effective hedges.

   
   

3. Regulatory Changes:

   Frequent regulatory changes make it essential to have investments spread across different categories.

   
   

4. Currency Depreciation:

   Gold and international investments act as good hedges against the declining value of the rupee.

Implementing The All-Weather Portfolio: Step-by-Step Guide

1. Assess Your Risk Appetite:

   While the All-Weather Portfolio is defensive by nature, the allocation to risky assets like equities and alternatives should match your risk tolerance.

   
   

2. Diversify Across Assets:

   Include all major asset classes – Equity, Bonds, Gold, and Liquid Funds.

   
   

3. Rebalance Regularly:

   Market movements will skew your allocations. Rebalance periodically to maintain the desired structure.

   
   

4. Monitor Performance:

   Track your portfolio’s performance, especially during adverse market conditions, and make adjustments if necessary.

Risks involved with All-Weather Portfolio

1. Asset Class Risk – We diversify the risk by investing in different assets by individual asset class risk are still relevant.

   
   

2. Over Diversification – Portfolio invests across various asset class which according to some managers may lead to over diversification instead of simplifying investment.

   
   

3. Tax Implications – Regular rebalancing of portfolio would have taxation impact which may suppress overall returns.

   
   

4. Suitability – All-Weather Portfolio may not be suitable for all types of investors. It is a low return, low volatile, resilient portfolio which may not appeal to risk taking investors.

Conclusion: Is the All-Weather Portfolio Right for You?

In the unpredictable world of Indian finance, the All-Weather Portfolio offers a robust framework for navigating market turbulence. It offers a simple yet powerful framework for building a resilient investment portfolio. By spreading your investments across uncorrelated assets and implementing risk parity, you can achieve steady returns even during turbulent times.

In the Indian context, this strategy is not only viable but highly relevant. It’s about playing the long game, prioritizing survival over spectacular short-term returns. It's about building a portfolio that can withstand any storm, ensuring your financial survival and long-term prosperity.

In a country where we celebrate jugaad and survival, the All-Weather Portfolio feels oddly at home. It’s not about chasing the next multi bagger—it’s about sleeping soundly knowing your wealth can weather any storm. As Indian markets ebb and flow, this strategy could be the edge Indian investors need.

APPENDIX

All-Weather Portfolio is for all the readers/investors who want to keep their allocation simple, yet make it effective. Portfolio that reduces volatility, drawdown but doesn’t compromise much on compounding and real returns.

All-Weather Portfolio reduces volatility (as measured by standard deviation) by 4 times and drawdown by 10 times when compared with 100% Equity Portfolio.

However, All-Weather Portfolio also tames equity returns during bull markets. It may not be suitable for very aggressive investors, but can be a good alternative for defensive investors or as a retirement portfolio. (Wondering why no AMC in India has launched such scheme yet for retired investors)

Risk On and Risk Off Assets Portfolio

The return of the asset of average day tells you very little about its value. What matters is the performance of the asset on most extreme days, months or years, otherwise known as the “tail” of returns distribution. The below chart shows return distribution of NIFTY since 1995. Consider the fact that top 5th percentile is responsible for 36% of the gains and bottom 5th percentile is responsible for 40% of the losses in the index since its inception in 1995. Most investors do not realise that the key to lasting performance good or bad, occurs on tails and not in the middle.

(NIFTY Index which is at 22125 as on 28th Feb, 2025 would have been 0.05 if we remove Tail Gains and 22587614858 if we remove Tail Losses.)

Risk On Assets derives steady gains during the period of stability and growth in exchange for substantial losses in event of change in conditions. Risk On Assets include Equity, Real Estate, High Yield Bonds, Private Equity and Other Equity Linked Products. Pro-growth assets cycle grows on availability of credit financed through cash flows and growth and dies when animal spirits change from greed to fear, growth cycle is no more sustainable and credit is extended on speculative expectation of perpetual liquidity and asset price growth. Risk On Assets play a pivotal role in wealth accumulation during periods of growth and stability, but they must be balanced with Risk Off Assets to navigate the full spectrum of market conditions, particularly during downturns and high inflation scenarios.

Risk Off Assets show neutral growth or accumulate small losses during periods of stability and exponential gains during periods of change. Risk Off Assets include Gold, Commodities, Cash. Risk Off Assets such as Commodities or Volatility Trading requires active management with returns coming from price momentum in either direction. The counterintuitive outcome arises from the Risk Off strategy’s ability to perform during market downturns, enabling the rebalancing of a portfolio towards Risk On Assets at opportune moments.

The All-Weather Portfolio combines exposure to both and create a portfolio that performs through out market cycles. It makes money in the middle but manages volatility at tail events thereby generating consistent risk adjusted returns. Portfolio may also include a fiat hedge through a prudent allocation to cryptocurrencies, to safeguard against high inflation or currency devaluation.

Disclaimer:

a) If you’re always comparing the overall portfolio performance to its highest performing asset in the last year, you’re setting yourself up to feel disappointed and underperform in the long run.

b) All-Weather Portfolio strategy discussed in this blog is for information and education purpose only. Past data does not guarantee future returns. It shall not be construed as financial advice. Financial investments are subject to market risk. Readers shall consult their financial advisors before making any financial investments.

c) This blog is not AI generated and to err is humans. Our calculations may be prone to errors. We acknowledge that data interpretation is subject to interpreter bias, hindsight bias and sequence of returns risk which may have affected current conclusions. Our interpretations to certain conclusions may be inherently biased. Reader discretion is advised.

d) Any products, schemes, assets and investments discussed in this blog are for information purposes only.