Ray Dalio is a billionaire investor and founder of the world's largest hedge fund, Bridgewater Associates. Let's explore the investment approach that made Dalio a famous investor (and very, very rich). Learn about his background, what he's holding in his portfolio now, and the types of assets he avoids.
Who is he?
Who is Ray Dalio?
Dalio founded Bridgewater Associates in 1975. Between 1975 and 2022, he managed the firm's assets directly, generating estimated gains in excess of $50 billion. Dalio stepped down as Bridgewater's co-chief investment officer (CIO) in 2022 but remains an operating board member and CIO mentor. In early 2024, Bridgewater reported more than $100 billion in assets under management.
Early life
Dalio was born in Queens, New York, and later moved to Manhasset, New York. His father was a jazz musician, and his mom was a homemaker. As a youngster, Dalio held various jobs; he had a paper route, did yard work, and shoveled snow for extra cash.
One of his jobs would shape Dalio into the billionaire investor he is today. At 12 years old, Dalio started working as a caddy at an exclusive local golf club. He overheard lots of investing shop talk and decided to try it himself. Dalio spent $300 to buy 60 shares of Northeast Airlines. The position quickly tripled in value thanks to a merger.
Dalio continued to invest in stocks, amassing a portfolio worth several thousand dollars before graduating from high school. He later moved into commodity futures, where low margin requirements enabled high strong-gain potential with a smaller cash outlay.
College years
During his college years, Dalio worked as a clerk on the floor of the New York Stock Exchange and as a commodity trader for Merrill Lynch. In 1971, President Nixon ended the Bretton Woods monetary system that linked the dollar to gold. The policy change piqued Dalio's interest in currency exchange rates, inflation, and macroeconomic trends.
The founding of Bridgewater
After earning a master's degree in business at Harvard, Dalio took a job with wealth manager Dominick & Dominick. That lasted a year before he moved on to brokerage Shearson, Hayden, and Stone. He left Shearson and founded Bridgewater the next year, recruiting clients from his former employer.
Fast-forward 48 years, and Dalio has a personal net worth in excess of roughly $14 billion and is one of the world's most respected investors.
Personal stats
Ray Dalio's personal stats
- Age: Dalio was born on Aug. 1, 1949.
- Source of wealth: Dalio is self-made. He came from a middle-class family and began building his own net worth by investing at age 12.
- Marital status: Married.
- Residence: Dalio and his wife, Barbara, live in Greenwich, Connecticut.
- Children: Dalio has four sons with Barbara. Their eldest son, Devon, died in a car crash in 2020.
- Education: Dalio has an undergraduate degree in finance from Long Island University and an MBA from Harvard Business School.
Strategy
Ray Dalio's investment approach
Five key themes form the foundation of Dalio's investment philosophy:
1. The economy drives investment opportunities and risks
Dalio is a macro investor who studies economic trends to find opportunities and identify risks. This is different from micro investors, who prioritize company-specific technical research.
Dalio's macro perspective earned Bridgewater special acclaim in the 2000s. As a longtime student of the economy, Dalio saw signs of trouble prior to the 2008 financial crisis. He adjusted the Bridgewater portfolios to prepare for a recession, and the move paid off. In 2008, Bridgewater's Pure Alpha fund grew, while the average hedge fund lost 19%.
2. Inflation poses serious threats to investors
Dalio has a healthy respect for inflation's ability to drain purchasing power and ravage investment returns. He's been a longtime advocate of holding gold as an alternate source of money.
A well-known Dalio investment strategy, the All Weather Portfolio, contains a 7.5% allocation of gold and is Dalio's signature allocation for managing wealth during troubled economic times. Bridgewater gets its gold exposure by holding the stocks of gold miners and producers, such as Kinross Gold (KGC 0.36%), AngloGold Ashanti PLC (AU 0.55%), and Barrick Gold (GOLD 2.05%).
3. Investors can manage risk by combining uncorrelated assets
Dalio is a big proponent of diversification. He recommends diversifying across 15 or more uncorrelated assets to reduce the risk-to-return ratio.
Uncorrelated assets do not move together, either directly or inversely. For example, gold and the S&P 500 are not tightly correlated; the S&P 500 can rise or fall without a proportional change in gold spot prices.
Bridgewater portfolios are diversified across asset types, sectors, and currencies. Dalio has also said he owns cryptocurrencies as a diversification strategy, though he has been critical of digital currencies as a store of value.
4. Investors should take profits on fully priced stocks
Dalio is not a pure buy-and-hold investor. He believes in taking profits on expensive stocks and reinvesting. He calls this practice "rotating the portfolio." Appropriate targets for reinvestment are undervalued stocks -- good companies that are lagging the economy or their sector.
5. Bias is a major contributor to investor losses
Investors tend to be bullish or bearish about the market or a specific position. Those are biases. Any kind of directional belief can encourage an investor to hold positions too long and miss the opportunity to take profits.
Admittedly, it's not humanly possible to let go of biases, though you can periodically analyze how you're making investment decisions. The analysis should reveal your directional beliefs, which can prompt you to think through the opposite scenario. According to Dalio, the actionable step is to diversify -- just in case your directional beliefs about an asset class, sector, stock, or the entire market turn out to be wrong.
The assets and liabilities that you would most like to have, and those that you would most like to avoid, change with the paradigm that exists at the time.Ray Dalio
What he avoids
Investments Ray Dalio avoids
The state of the economy dictates which investments Dalio avoids. One asset Dalio has publicly changed course on is cash. Not long ago, Dalio was known for his opinion that "cash is trash." But in early 2023, he argued that cash had recently been more attractive than stocks and bonds.
Dalio hasn't changed his stance on bonds, however. He was bearish on bonds in 2019 and remains so today. He doesn't like the huge debt balances held by U.S., European, and Japanese governments or the negative real yields these securities deliver.
Dalio's current view on bonds is more negative than in the past. That's evident because his All Weather Portfolio allocation -- developed in 1996 -- recommends a significant position in debt. The All Weather Portfolio comprises 30% U.S. stocks, 40% long-term Treasury bonds, 15% intermediate-term Treasury bonds, 7.5% diversified commodities, and 7.5% gold.
Investments
Ray Dalio's investments
The table below shows Bridgewater's top positions as reported by the fund's second-quarter 2024 13-F filing.
| Name | Ticker | Description |
|---|---|---|
| iShares Core S&P 500 ETF | NYSEMKT:IVV | Index fund that invests in large-, mid-, and small-cap stocks in emerging markets |
| iShares Core MSCI Emerging Markets ETF | NYSEMKT: IEMG | Index fund that tracks the S&P 500 |
| Alphabet | NASDAQ:GOOGL | Provides online advertising, business applications, and cloud computing services |
| Nvidia | NASDAQ:NVDA | Designs high-performance graphics processing units for artificial intelligence, gaming, and other applications |
| Proctor & Gamble | NYSE:PG | Makes and sells branded consumer packaged goods |
More from Ray Dalio
Related investing topics
Macro-investing
Ray Dalio and macro-investing
Dalio's macro approach has a steep learning curve. Fortunately, he's outspoken about his views on inflation and the economy -- and good at explaining his economic theories.
Investors can watch Dalio's 30-minute video How the Economic Machine Works for a primer on his view of the economy. Another resource is LinkedIn, where he periodically posts about the economy and his investment theory.
Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Catherine Brock has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America. The Motley Fool has a disclosure policy.
