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Counsel from Council

Having followed Ray Dalio for over a decade, when the founder of the world’s largest, most successful hedge fund speaks, I listen. Most recently while at the Council on Foreign Relations, Dalio opined on how the average investor should allocate their portfolio. Dalio’s comments echo many of ours. Below you will find a link to full hour long interview, but for those who do not have an hour, I have summarised the main points below:

1. “I think that the first thing is you should have a strategic asset allocation mix that assumes that you don’t know what the future is going to hold.”

2. “…the average investor and most people should not be playing that game [market timing]. They’re going to lose at the poker table.”

3. “[the] key thing is that there are basically four economic environments. There are two main drivers of asset class returns: inflation and growth. When growth is slower-than-expected, stocks go down. When inflation is higher-than-expected, bonds go down. When inflation is lower-than-expected, bonds go up.”

4. “I would encourage them [investors] to understand that there’s inflation and growth. It can go higher and lower and to have four different portfolios essentially that make up your entire portfolio, that gets you balanced. Because in every generation there is some period of time, there’s a ruinous asset class, that will destroy wealth and you don’t know which one that will be in your life time. So the best thing you can do is have a portfolio that is immune, that is well diversified.”

5. “I’m saying based on the notion that you don’t know which one it is. And therefore when you say which should it be today?’ It should be balanced today like it is in the future and it should have that mix of assets. And now you get into a whole conversation…But you need to achieve balance.”

In short, no one has a crystal ball. Building a portfolio that has a well-diversified asset mix commiserate with your personal risk tolerance offers the highest probability of investment success.

Click here to watch the interview.


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