Ray Dalio, billionaire hedge fund manager and founder of the investment firm Bridgewater Associates, recently spoke about diversifying with gold during an interview with renowned life coach Tony Robbins. Dalio is the 30th richest person in America and the 69th richest person in the world with a net worth of $15.2 billion, says Forbes.
According to Barron’s, Dalio’s Pure Alpha hedge fund has lost money only 3 times in 20 years, and in 2010 he produced 40% returns for his top clients. “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 said to Robbins. He calls his investing approach the “All Weather Strategy”.
He believes there are four things that move asset prices:
- Rising economic growth
- Declining economic growth
He also claims there are four possible economic “environments”, or “seasons” (although they occur in no particular order), that affect whether asset prices go up or down:
- Higher than expected inflation (rising prices)
- Lower than expected inflation (or deflation)
- Higher than expected economic growth
- 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.
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