Holy Grail of Investing – Ray Dalio’s Wisdom (Analysis)

What is the Holy Grail of investing?

The Holy Grail is often used to describe a method to achieve eternal success or happiness, depending on your goal. The Holy Grail is the lure of high and consistent returns in investing.

What is the Holy Grail of investing? This article explains some essential advice on how to beat most professional money managers and retire “rich” – depending on your savings and time in the market. It’s not about being smart, but being average! By being average, you end up with a decent nest egg.

Unfortunately, to get the returns you want, you have to accept risk in the form of losses, volatility, and drawdowns: You need to accept that drawdowns and temporary setbacks are the price you pay to get the long-term returns offered in the financial markets.

This is what makes it so difficult! In 2008/09, many believed the financial markets were on the verge of collapse, tempting many to sell all or part of their holdings at the exact wrong moment.

In hindsight, the GFC was a huge buying opportunity. But during the crisis, it didn’t feel like that – it never does. To get good returns, you need to have a plan and stick to it. This plan is The Holy Grail.

Holy Grail no. 1: Make investing as easy as possible

Don’t try to beat the market averages. By getting the same return as the averages, you beat at least 75% of the professional investment community. Your focus should be to make a plan, make sure you stick to the plan, keep costs as low as possible, and be careful of frequent buying and selling.

Women have proven to be better retail investors than men. Why is that? It’s because they are not trying to outsmart the market. They save, invest, and forget about it.

Simplicity involves investing in broad mutual funds, perhaps both passive and active. Make sure you know what you invest in. For example, the S&P 500 is heavily tilted toward just the five biggest stocks – the highest concentration in history.

Thus, if you invest in the S&P 500, much of the performance is dependent on those five stocks, something that could be good or bad. We don’t know. Alternatively, split by adding the equal-weighted S&P 500. Moreover, add some foreign mutual funds. Diversify your holdings:

Holy Grail no. 2: Diversification (Ray Dalio’s holy grail of investing)

The benefits of diversification are generally well known: reduced risk through exposure to various sources of income.

In the book Principles, Ray Dalio refers to diversification as the Holy Grail of investing. Portfolio theory suggests you can diversify by adding more stocks to your portfolio, but the problem is that stocks are mostly correlated.

The insights of Dalio indicate that you can further reduce risk (volatility) by adding uncorrelated asset classes to your portfolio, thus increasing the return/risk ratio. One controversial risk measurement is the Sharpe Ratio:

You can expand your portfolio by adding other asset classes than stocks, such as, for example, commodities, bonds, and real estate being the most relevant. Based on Dalio’s diversification theory, Dalio and his team at Bridgewater Associates developed the All-Weather Portfolio, which we can call Ray Dalio’s holy grail of investing:

  • 55% bonds
  • 30% US stocks (US stocks are about 50% of world market capitalization)
  • 15% hard assets and commodities

The bond component is high, especially considering the current low-interest rates, making bonds vulnerable to losses if inflation pressures pick up steam. Most of today’s investors have never experienced a market with rising yields and high inflation. The rates have been falling since the early 1980s, and the stagflation period of the 70s, when the stock market produced negative real returns, is long forgotten.

If rates increase, the price of the bonds will go down – a lot. Hence, the bond allocation seems very high. The easiest diversification away from stocks is probably real estate – a business model most people understand.

We have written more about correlation on our other website, Quantified Strategies:

In recent years, with increased globalization and technology, world markets have tended to move much more in tandem with the US markets, thus limiting the amount of diversification you can get by investing overseas and abroad. Furthermore, during panic and crisis, the correlations increase even more between most asset classes.

Holy grail no. 3: Don’t follow the markets

The threat to a buy and hold program is the investor himself. Following his stocks and listening to stories and advice about them can lead you trading actively, producing on average the inferior results about which I’ve warned. Buying an index avoids this trap.

– Edward Thorp – A Man For All Markets

Behavioral mistakes are the investor’s worst enemy. We always make cognitive mistakes: confirmation bias, fear of missing out, group thinking, “resulting”, optimism/pessimism bias, etc. The list of biases is almost endless.

The more you follow the markets, the more mistakes you’ll make. Just a tiny portion of us are independent thinkers. Combining an abundance of news and cheap commissions is a lethal mix for your portfolio. The temptations to make more switching and “smart” allocations increase. Needless to say, this is unlikely to increase your returns. See rule no.1: make investing as easy as possible.

Holy Grail no. 4: Think long term

Most investors have long forgotten the dreadful markets in the 1970s. Even the zero returns from 2000 until 2010 seem forgotten. To increase the odds of getting the long-term benefits of investing in stocks and other assets, your time horizon should be at least two decades. Compounding requires time – more so than money:

Holy grail investing
Saving and investing 10 000 a year make a substantial nest egg over 30 years.

This chart shows how 10 000 saved every year compounded to about 1,8 million after 30 years with a 10% annual return. Warren Buffett made 99% of his wealth after turning 50, and the reason is displayed in the chart above: the snowball gets bigger as time goes by.

This is easily noticeable on the chart. Unfortunately, in real life, the compounding effect seems very slow. Temptations to add more risk are frequent and alluring at every corner. The benefits of compounding are gradual – not immediate:

If you navigate from one part of the city to the other, a one-degree mistake on your GPS is unlikely to create much harm. But if you are crossing the Pacific Ocean, you surely miss your destination by a wide margin.

Holy grail no. 5: Delayed gratification

Compounding requires time and delayed gratification, often lots of it. Most people would rather have one marshmallow today than two in the future. Moreover, we tend to think in linear terms and not appreciate the effort that can be sustained by thinking long-term.

Patience is a lot more complicated than you think. Very few have a long-term mindset, and we like to take shortcuts wherever we can.

Holy grail no. 6: Save regularly

As the chart above shows, it pays off to save regularly. The math indicates it’s better to start saving early than more later:

What is the holy grail of investing?

The blue bars in the chart above are the 10 000 saved at the end of every year compounded at 10%. The red bars are 10 000 invested in year 0 and 15 250 invested every year in the last 19 years, compounded at 12%. In the latter example, even a 12% return can’t beat the 10% in the first example.

The lesson is obvious: start saving as early as you can.

Holy grail no. 7: Live within your means

To live within your means, you must spend less than you earn. This is easier said than done because of several temptations:

  • We live in a society where consumption is high.
  • It’s easy to get credit.
  • We like to keep up with the Joneses.

Ensure you have a margin of safety and spend less than your income. It’s very hard to reduce consumption as soon as you get used to it.

Holy grail no. 8: Beware the switching

The markets have a habit of shaking out the faint at heart before they can realize a profit. Ensure you stick to your original system or approach unless you have overwhelming reasons not to do so. When you invest, buy something you would like to own for eternity. Of course, not all investments turn out well, but if your aim is “eternity” you become more selective. The longer your time frame, the simpler you make your investments.


The Holy Grail’s most important elements are simplicity, diversification, and keeping a distance from the financial markets. Make sure your portfolio is robust and can tackle any nasty surprises from record low interest rates and money printing. Make sure you withstand short-term pressures and think long-term, and be careful when switching in and out of positions.

Disclosure: We are not financial advisors. Please do your own due diligence and investment research or consult a financial professional. All articles are our opinion – they are not suggestions to buy or sell any securities. 


– Why is making investing as easy as possible considered a Holy Grail?

Making investing easy involves avoiding attempts to beat market averages and focusing on creating and sticking to a simple plan. This approach can outperform a significant portion of the professional investment community.

– What is the significance of having a plan in investing, especially during market crises like 2008/09?

Having a plan is crucial in investing, especially during market crises. The 2008/09 financial crisis, though daunting at the time, turned out to be a significant buying opportunity in hindsight.

– How does simplicity in investing relate to the success of women investors compared to men?

Women investors often outperform men because they tend to avoid trying to outsmart the market. Their approach involves saving, investing, and maintaining a long-term perspective without frequent buying and selling.

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