Ray Dalio on the Latest Addition to His ‘Principles’ Series, and How to Invest Today
Ray Dalio, legendary investor and New York Times bestselling author, has some advice for investors for what could be a choppy year—and why diversifying your portfolio can reduce your risk by about 80%.
Dalio joined Investpedia’s editor-in-chief Caleb Silver, on The Investopedia Express podcast to discuss why a well-diversified portfolio and understanding economic cycles can help investors reduce risk in times of volatility, and why you should have a systematic approach to the way you make decisions.
Dalio has over five decades of experience navigating financial markets as a global macro investor, and is the co-founder of the world’s largest hedge fund, Bridgewater Associates. He is the author of the #1 New York Times Bestseller Principles: Life and Work and most recently, Principles: Your Guided Journal.Below is their edited conversation.
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Silver: If you had to think about putting money to work for the next 25 years, what are you thinking about as an investor, as a retail investor, who has access to the types of products me and my listeners do?
Dalio: Well, the most important things are, you're not probably going to be able to compete in this market timing game because we put hundreds of billions of dollars in it, and it's a tough game.
The second thing is that the key is your return-to-risk ratio. Risk and diversification are of paramount importance, and the fact is that if you diversify well, you can reduce your risk by 70% or 80% if you take uncorrelated, good things.
And if you have the right diversified portfolio, that means you can increase your return-to-risk ratio by a factor of 5 by knowing how to diversify without reducing your returns. So
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