When Ray Dalio Talks, Investors Listen! Here’s His Latest Advice For Investors!

As one of the world’s most famous and successful investors, Ray Dalio’s words are always taken notice of by the investing world. We are no different in listening to him, even if we don’t often write about some of his specific comments. But we thought some of his comments made in recent days merit an article in their own right.

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Who is Ray Dalio?

Ray Dalio is a prominent American investor, hedge fund manager, and author, best known as the founder of Bridgewater Associates, which is one of the largest and most successful hedge funds in the world. He’s widely respected in the investing world due to his unique approach to macroeconomic investing, his long track record of success, and his deeply analytical and principled way of thinking about markets, organisations, and life.

Born in 1949, he founded Bridgewater in 1975 and is best known for the idea of balancing a portfolio so that it performs well in any economic environment (inflation, deflation, growth, recession). Dalio openly shares his thoughts on global economics, policy, and investing via writings and interviews. His economic models (like his Debt Cycle Theory) are widely respected.

Dalio has always believed that economies run in predictable cycles driven by 5 things:

• • The debt cycle
  • The domestic political cycle,
  • The geopolitical cycle,
  • Natural disasters and climate events,
  • Technological Developments.

He believes portfolios need to reflect this because timing is difficult, even for professionals. Even so, ‘he thinks everything that happens has happened before’. Which brings us to his latest comments to catch our eye.

Ray Dalio is worried about the current environment

Ray Dalio was at the recent Greenwich Economic Forum in Connecticut and spoke at the forum, to multiple media outlets including CNBC as well as on social media. He said the current market environment was ‘very much like the early 1970s’, when the US dollar and other assets were damaged by inflation, high government spending and debt.

Dalio warned that the US debt situation was ‘at a very dangerous inflection point’. He claimed the US was spending 40% more than it was taking in (US$7tn vs US$5tn) and the accumulation of debt service payments was squeezing away buying power.

Moreover, the rise of autocratic politics in the US was concerning, not just because of what it meant for investors, but the underlying factors (wealth inequality and a collapse in trust) because investors were too scared to speak up against it. The decision of the Trump administration to take a 10% stake in Intel marked,’ strong autocratic leadership that sprang out of the desire to take control of the financial and economic situation’.

He also had concerns about debt levels in Japan, the UK and France too, not to mention the fact that the ‘rules based order’ of the post-WW2 world was gone.

What does this mean for investors?

Dalio’s biggest advice was to buy gold. Specifically, to allocate as much as 15% of an investor’s total portfolio to gold.

‘When you are holding money, and you put it in a debt instrument, and when there’s such a supply of debt and debt instruments, it’s not an effective store hold of wealth’, he said. ‘Gold is the only asset that somebody can hold, and you don’t have to depend on somebody else to pay your money for’.

This is in stark contrast to the general advice of many financial advisers that would suggest no more than 10% is allocated to all commodities (some recommend even less) and that the ideal is a 60/40 split between stocks and bonds.

In recommending this, Dalio is implying that gold still has more growth to come despite exceeding US$4,000/oz, driven by mounting US fiscal deficits, persistent inflation, a weaker dollar and bets on falling interest rates.

Conversely, Dalio recommended investors avoid both publicly traded and private credit. In AI, he thinks the winners will be users that deploy AI to cut costs and boost profits – not necessarily the ‘shovel-makers’.

Conclusion

It may appear the Bridgewater founder isn’t telling us anything more than Blind Freddy could: Buy Gold. But gold does have its skeptics right now. And even if investors disagree with his recommendations, it is interesting to consider his general views in constructing portfolios.