For his new book, MONEY Master the Game: 7 Simple Steps to Financial Freedom, Tony Robbins interviewed Ray Dalio, founder of Bridgewater Associates, the largest hedge fund on the planet with $160 billion in assets under management.
Dalio’s, Pure Alpha Fund has lost money only 3 times in 20 years, and in 2010 he produced 40% returns for his key clients according to Barron’s. Over the life of the fund (since launching in 1991), he’s produced a 21% compounded annual return (before fees).
If there’s anyone I wanted to ask, “Can the average investor still make money in this crazy, volatile market?” it was Ray. So when he told me, “There’s no question you can still win,” I was all ears!
“But Tony,” he prefaced his remarks about the approach that he calls his “All Weather Strategy,” “it’s not really that simple.”
See, Ray has taken very few investors in the last 10 years, and the last time he did, the bar was set very high: you had to be an institutional investor, you had to have at least $5 billion in investable assets, and your initial investment needed to be a minimum of $100 million just to get Ray’s advice. Not only does Ray’s All Weather strategy use very sophisticated investment instruments that use leverage to maximize returns, but it is also closed to new investors.. Fortunately, as a self-made man from the Outer Boroughs, he has never forgotten his roots nor stopped caring about the little guy.
So I asked:
“Can you give me the percentages that the average person can do, without any leverage, to get the best returns with the least amount of risk. Could you offer a version of the All Weather portfolio that readers could do on their own or with the help of a fiduciary advisor?”
After much convincing Ray started with the most important part of his strategy (and how it got its name): “Tony, when looking back through history, there is one thing we can see with absolute certainty: every investment has an ideal environment in which it flourishes. In other words, there’s a season for everything.”
Dalio states there are only four things that move the prices of assets:
3. Rising economic growth
4. Declining economic growth
And there are only four different possible “environments,” or economic “seasons,” that will ultimately affect whether investments (assets prices) go up or down (except unlike nature, there is not a predetermined order in which the seasons will arrive):
1. Higher than expected inflation (rising prices),
2. Lower than expected inflation (or deflation),
3. Higher than expected economic growth, and
4. Lower than expected economic growth.
He advises investors to have 25% of their risk in each of these four economic environments, which is why he calls it the “All Weather” strategy.
Dalio goes on to recommend a portfolio consisting of stocks, long-term government bonds, commodities, and gold. He explained his reasoning for including commodities and gold:
“You need to have a piece of that portfolio that will do well with accelerated inflation so you would want a percentage in gold and commodities. These have high volatility. Because there are environments where rapid inflation can hurt both stocks and bonds.”
Like many precious metal investors, Dalio turns to gold for diversification and as a hedge against inflation. Because gold typically performs well when there is high inflation and/or declining economic growth, diversifying with gold reduces the overall risk in his portfolio and protects it during times when stocks and bonds may take a hit. Gold is particularly well-suited for diversification and hedging, since it tends to move independently of paper assets.
Read the original article here…
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