Can ETFs Power an All-Weather Investment Portfolio?

For retirees and those approaching retirement, the search for genuinely safe investments can feel increasingly difficult—especially in recent years. Bonds and bond funds, long seen as conservative choices, posted losses in 2022 as central banks raised interest rates. Stocks, after reaching highs following the brief initial COVID bear market, have since pulled back, leaving many investors uncertain about how to allocate savings for both income and stability.

Short-term bank accounts and guaranteed investment certificates (GICs) still offer principal protection, but rising inflation complicates the picture. Even a GIC yielding 5% annually won’t preserve purchasing power if inflation runs at 6%; in real terms, that returns a loss. For retirees, protecting the real value of savings while generating reliable income is the central challenge.

Are ETFs a good fit for an all-weather portfolio?

Asset allocation exchange traded funds (ETFs) are an appealing option for many because they simplify diversification and maintenance. A single fund can approximate a classic 60/40 stock-to-bond split—examples include broad balanced ETFs that combine equities and fixed income across markets. Providers also offer versions tilted toward more aggressive or more conservative allocations.

One key benefit of these funds is automatic rebalancing. When stocks outperform and their share of a fund grows, the ETF systematically shifts gains back into bonds; when stocks fall, it can buy more equities at lower prices. This built-in discipline helps maintain the intended risk profile without frequent hands-on management.

Is the traditional 60/40 portfolio truly balanced?

Despite the virtues of balanced ETFs, relying mainly on stocks and bonds leaves out many other asset classes that can behave differently under various economic conditions. Commodities, gold and other precious metals, real estate (including REITs), cryptocurrencies and inflation-linked bonds are examples of assets that can reduce overall portfolio correlation to equities.

In his book Balanced Asset Allocation, Alex Shahidi argues that the conventional 60/40 portfolio is far more correlated with the stock market than investors realize. By that measure, the classic balanced mix could be “exceedingly out of balance” for handling diverse economic climates.

Financial advisors echo similar concerns. Matthew Ardrey, a wealth advisor in Toronto, says the 60/40 approach is less reliable today than it used to be. Bonds no longer offer the same predictable offset to stock volatility because they face fresh challenges from rising interest rates and persistent inflation. He recommends expanding exposure to alternatives and equities while trimming bond weightings.

Shahidi suggests evaluating assets not only for expected returns but for how they perform across different economic scenarios—inflation, deflation, strong growth and weak growth. The goal is an all-weather portfolio that blends multiple, only partially correlated asset classes to reduce the risk that everything falls at once.

A well-known starting point for this approach is Ray Dalio’s All-Weather portfolio, which builds on earlier ideas such as Harry Browne’s Permanent Portfolio. Where Browne proposed a simple four-way split—stocks, long-term bonds, gold and cash—Dalio’s version diversifies further across fixed income durations, commodities and precious metals to balance exposure to changing economic regimes.

Typical implementations often allocate a modest portion to equities (around 30%), a majority to bonds (roughly 55%), and smaller allocations to commodities and gold (commonly 7.5% each). Some variants include Treasury Inflation-Protected Securities (TIPS) or their Canadian equivalents, Real Return Bonds, to directly hedge inflation risk.

Considerations for Canadian investors

Canadian investors should adapt all-weather ideas to domestic realities. Home-country bias matters, especially in taxable accounts, where Canadian equities can provide natural exposure to commodities and other sectors prevalent in the domestic market. Real Return Bonds are Canada’s inflation-linked government securities and can play a role similar to TIPS for U.S.-based allocations.

However, inflation-protected bonds often trade at a premium, which can reduce yields. That trade-off means they are not a universal fix; investors must weigh the cost of inflation protection against potential benefits to total return and income.

Other assets to include

Adding real estate investments, such as REIT ETFs, can diversify away from purely public-equity exposure. Commodities and precious metals can act as hedges in inflationary periods. Younger investors may choose to allocate a portion toward cryptocurrencies in place of some gold, though opinions vary widely among advisors about their suitability for retirement-focused portfolios.

Alternative investments—private credit, mortgages, private REITs and other non-public opportunities—can also complement a core portfolio by targeting mid-single to high-single-digit returns after fees. These can be particularly useful for investors seeking income and lower public-market correlation, though they often come with liquidity and fee considerations.

Do Canadians still need 60/40?

Not everyone believes a dramatic departure from 60/40 is necessary. Some portfolio managers argue that a simple, well-executed 60/40 (or 70/30) split remains effective—especially when combined with patience and disciplined rebalancing. Canadian index exposure often includes companies tied to commodities, giving domestic investors additional, implicit diversification.

The main practical challenge with adding many uncorrelated assets is behavioral: when some parts of a portfolio lag, investors may be tempted to abandon the strategy. Successful diversification requires viewing the portfolio holistically and sticking to long-term plans rather than reacting to short-term underperformance in particular holdings.

The bottom line

There is no single perfect solution for all investors. An all-weather portfolio can reduce reliance on one dominant market driver and improve resilience across economic cycles, but it is not a guarantee of higher returns or peace of mind. Retirement savings are often only one part of overall financial security—pensions such as the Canadian Pension Plan (CPP), Old Age Security (OAS), and for eligible individuals the Guaranteed Income Supplement (GIS) also contribute to retirement income stability.

Practical steps for retirees and near-retirees include assessing how much risk you truly need to take, diversifying across uncorrelated or partially correlated asset classes, and adjusting bond weightings and alternatives to reflect current inflation and interest-rate environments. Keeping strategies simple, tax-efficient and aligned with personal income needs often produces the best long-term results.

MoneySense Investing Editor at Large Jonathan Chevreau is founder of the Financial Independence Hub, author of Findependence Day and co-author of Victory Lap Retirement. He can be reached at [email protected].

This article is presented by an advertising partner.

This is editorial content produced independently with financial support from an advertiser. The sponsor did not influence the creation of the article.