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ToggleAmidst escalating financial market volatility, Ray Dalio, founder of Bridgewater Associates, the world's largest hedge fund, has decided to share his life's work with the public. In a post on the X platform, Dalio stated that his current life goal is to pass on the principles that have helped him over the past 60 years, the most important of which is how to construct an "All Weather Portfolio."
Debunking two major myths among retail investors: Cash is unsafe, and don't try to "time the market."
In the opening of his article, Dalio directly addresses a fatal blind spot for most investors. He argues that what investors need most is a portfolio that doesn't rely on market timing and can generate the highest returns with minimal risk. He debunks two common investment myths:
- Cash is not a safe haven: Many people believe that short-term government bonds or high-quality money market funds (i.e., cash equivalents) are the safest because they do not default. But Dalio warns that, over the long term, cash has the lowest after-tax real return, especially during periods of high inflation, when holding cash will significantly reduce its purchasing power.
- Market timing is ineffective: almost all investors (including seasoned professional managers) cannot effectively and accurately predict market entry and exit points. Therefore, individual investors who manage their own funds should avoid market timing at all costs.
Core Projects: Risk Parity and Addressing Four Major Economic Scenarios
Dalio recalls that this strategy originated 30 years ago when he designed it so that his family could continue investing safely after his death. The goal is to achieve returns that beat cash (and outperform the traditional 60/40 equity/bond allocation), with lower risk and without being severely impacted by any single economic environment.
To achieve this goal, Dalio invented the concept of "Risk Parity." This differs from the traditional allocation based on "capital proportions," instead balancing based on "risk (volatility)."
- Balanced volatility: By increasing the leverage (volatility) of low-risk assets and reducing the proportion of high-risk assets, the risk contribution of various assets in the portfolio tends to be more consistent.
- Hedging against macroeconomic drivers: The economic environment is primarily driven by the rise and fall of "inflation" and "economic growth." For example, when inflation and growth rise, bonds perform poorly, while gold, TIPS (Treasury Inflation-Protected Securities), and commodities outperform. By allocating equal risk across the four quadrants of "inflation rise/fall" and "growth rise/fall," a passive strategic allocation that is unaffected by bull or bear markets can be created.
The trailer reveals an "all-day recipe" that everyone can DIY.
This system, developed by Dalio with Bridgewater's current co-chief investment officers Bob Prince and Greg Jensen, later evolved into Bridgewater's most famous investment product. However, Dalio emphasizes that "all-weather" is a challenging concept in financial engineering, not a single product. Anyone can use this logic to create their own version.
"My greatest hope is to let people understand how it works and have the opportunity to apply it, so that everyone can have the confidence to still get good returns and not be severely affected in the so-called 'bad economic environment'."
At the end of the article, Dalio gave investors a big surprise. He promised that he would soon write and publish his "recipe" for building an all-weather investment portfolio, so that everyone could follow this blueprint to create their own risk-resistant wealth.
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