Ray Dalio is one of the world’s most-known investors. Who is he? How does Ray Dalio invest? What is his famous All-Weather Portfolio? What are Ray Dalio’s investment strategies? These are some of the answers we answer in this article. At the end of the article, we have collected and assembled many quotes taken from his books and writings. Dalio has a great investment track record and is full of investment wisdom. Read and learn!
Who is Ray Dalio?
Raymond Thomson Dalio, best known as Ray Dalio, is an American billionaire investor and one of the top hedge fund managers. He is the founder and co-chief investment officer of the world’s largest hedge fund, Bridgewater Associates, which has about $154 billion in assets under management (AUM). He founded Bridgewater Associates in 1975 in New York and within 10 years it was infused with a $5 million investment from World Bank’s retirement fund. Presumably, over the last 28 years, Bridgewater has averaged 11.5% annually, which is a spectacular feat considering the large asset base.
Ray Dalio is known as one of the greatest innovators in the financial world. He coined and popularized many commonly used practices in the financial market such as risk parity, currency overlay, portable alpha, and global inflation-indexed bond management.
Because Dalio has a strong say in US’s financial policy, in 2012, Dalio appeared on Time’s annual list of the 100 most influential people in the world.
Moreover, Bloomberg Markets listed him as 50 most influential people in 2011 and 2012. Because he is well-respected and often asked for a comment on many topics, Dalio decided to write a book about his main philosophy in life. It was published in 2017 and is about corporate management and investment philosophy, and the turtle is Principles: Life & Work. It was on the New York Times bestseller list for a long time.
Ray Dalio’s childhood and education
Born in New York City’s Jackson Heights on August 8, 1949, Dalio’s father Marino Dalio was a jazz musician who played clarinet and saxophone at Manhatten jazz clubs. At the age of 8, his family moved to Manhasset in Nassau County, New York.
Dalio grew up in a middle-class family, and at the age of 12, he started caddying for many Wall Street professionals, including Gorge Leib at the Link Golf Club, which was within a walking distance from his home. Gorge’s son offered him a summer job at his trading firm and he was soon hooked and began investing. He built up an investment portfolio that was worth several thousand dollars when he reached high school.
Later he attended CW Post Graduate College of Long Island University and received an MBA from Harvard Business School in 1973. During his college days, Dalio further developed an interest in buying and selling stocks. He was inclined toward investing in commodities that had low borrowing requirements. Soon after Harvard, he founded Bridgewater, and, as the saying goes, the rest is history.
Commitment toward social welfare
Along with generating wealth from investment, Dalio is known for his works of social welfare and charity.
The best strategies can be found in our….
Backtested trading strategies
In 2011, he became a part of the campaign, Giving Pledge, committing to donate more than half of his wealth to charitable causes. He launched Dalio Foundation for carrying out social welfare activities. Through his Foundation, Dalio has given out more than $1 billion in charitable grants.
What are Ray Dalio’s trading and investing strategies?
According to Ray Dalio, you have to be defensive and aggressive at the same time while investing. Being aggressive makes you earn money and being defensive helps you protect your money. However, it’s a thin line between attack and defense.
He uses qualitative investment methods to identify new investment areas, normally top-down by making a bet on the macro and economical situation. He and Bridgewater seek to structure a portfolio with uncorrelated investment returns based on risk allocations rather than asset allocations. Keep in mind that the main clients of Bridgewater Associates are pension funds, foundations, endowments, and central banks.
Dalio divides his investments into two parts:
Beta Investments: This type of investment produces returns through passive management and normal market risk.
Alpha Investments: These investments are actively managed to generate better returns than the benchmarks. These investments are not related to the general market.
The investment principles of Ray Dalio are as below:
Ray Dalio on diversification
What I’m trying to say is that for the average investor, what I would encourage them to do is to understand that there’s inflation and growth. It can go higher and lower and to have four different portfolios essentially that make up your entire portfolio that gets you balanced.
Dalio says in every public domain that diversification is the key to success. It reduces the risk by spreading across various asset classes over a long period of time.
Why does he think that? This is what Ray Dalio said about why you need to be diversified:
I think that the first thing is you should have a strategic asset allocation mix that assumes that you don’t know what the future is going to hold.
To reduce the fear of potential loss due to market volatility, the diversification of investment works as a panacea.
He has previously suggested that a diversified portfolio must comprise something like this (see more of this below about the All-Weather Portfolio):
- 30% stocks
- 40% long-term U.S. Bonds
- 15% intermediate U.S. Bonds
- 7.5% gold
- 7.5% raw materials
He recommends diversification of the portfolio based on industries, asset classes, and currencies.
According to Ray Dalio, diversifying across 15 or more uncorrelated assets reduces your risk-to-return ratio significantly, because uncorrelated assets do not move together and do not deter each other.
For instance, gold and the S&P 500 are least correlated to each. Gold prices can skyrocket without having any impact on S&P 500, and such portfolio diversification reduces the fear of market collapse during volatile times.
To read more about correlation and risk we recommend the following articles we have published on the website:
- What does correlation mean in trading?
- Does trend-following work? (Trend-following is often a good diversification tool)
Pure Alpha Fund
Pure Alpha is a fund created by Dalio’s hedge fund Bridgewater Associates to earn high returns with lost risk, which was later popularized as a stock market investing strategy that works on a risk factor approach.
It was this strategy that helped Bridgewater Associates to avoid the 2008 market implosion, although its rivals witnessed heavy losses. His fund Pure Alpha grew by 9.5% in 2008.
- Pure Alpha focuses on investing in different markets including stocks, bonds, commodities, and currencies by anticipating macroeconomic trends using computer models and algorithms.
- The Pure Alpha strategy uses the data ranking of the Smart Beta system to filter the securities applicable to its algorithms. The least correlated algorithms are collected to build a portfolio.
- Pure Alpha uses the market-neutral system to collect the algorithms, weighing the position of securities to build a portfolio that can generate income in any state of the stock market.
- Unlike short-term algorithm trading, under the Pure Alpha investment method, the holding period for each security varies from several days to several months.
The All-Weather Portfolio
This portfolio was Developed by Ray Dalio and his partners at Bridgewater Associates as a portfolio to withstand every crisis in the market. The All-Weather Portfolio, as the name suggests, is an active asset allocation strategy that does not dither in any investment climate be it inflation, or deflation stagflation.
According to Dalio, there are 4 seasons in the market that can affect the value of assets price:
- Higher than expected inflation (rising prices)
- Lower than expected inflation (or deflation)
- Higher than expected economic growth
- Lower than expected economic growth
Dalio’s model suggests that a well-balanced portfolio with all assets in appropriate proportion can tackle all seasons in the market.
For example, the Covid-19 Pandemic was a litmus test for All-Weather Portfolio when the S&P 500 suffered a 33% drawdown, and Bridgewater Associates’ All-Weather Portfolio witnessed only a 6% drop.
For more info about the portfolio, please read our detailed explanation of the All-Weather Portfolio. showing backtests, annual returns, drawdowns, etc.
Investment with a Long Term Vision
Dalio says that any investment must not be done for short-term gain by anticipating the market’s ups and downs. He’s not a believer in predicting short-term swings, no matter the asset. Ray Dalio advocates that investment should be done with a very long-term time horizon to make sure he does proper planning to increase returns and minimize losses. The All-Weather investment principles are examples of this.
Don’t Bring Biases in Investing
Dalio believes that our investing biases are one of the major contributors to investors’ losses. He advises that an investor should not invest in a particular stock or asset with a preconceived notion, this is also why he prefers to invest with a top-down approach.
He recommends that an investor must periodically analyze his/her investment decisions by keeping an investment journal.
Learn from Failures
Failure was one of the best things that happened to me because it gave me the humility I needed.
The above quote is what Ray Dalio wrote in his best-selling book called Principles: Life and Work. Dalio considers failure as an opportunity to learn and inculcate humility toward the market. It leads us to self-improvement.
In 1982 Dalio went bankrupt when his bet based on his prediction that the global economy was going towards depression, failed. The market proved him wrong and witnessed a bull run making him go bankrupt.
He lost all his money and he had to lay off his employees. He left with no alternative except to borrow $4000 from his father to make ends meet. This was a very humiliating process and made him open his eyes and make sure he is always diversified to avoid this in the future.
Global Financial Crisis 2007-2008: Rise to prominance
Bridgewater was the first firm to forecast the potential global financial crisis in 2007 when in the spring of 2007, Bridgewater became nervous about the danger of excessive financial leverage. After examining public records of most of the world’s largest entities, Waterbridge’s researchers found that estimated future liabilities related to bad debts stood at $839 billion.
Ray Dalio went on to disclose these findings with the US Treasury Department and White House economic advisories in December 2007, but all were ignored. Based on his findings, a typical top-down approach, Dalio anticipated the stock market implosion in 2008 and subsequent money printing by the Federal Reserve to revive the economy. He was spot on.
It was these findings that helped Bridgewater and its investors sustain the 2008 stock market implosion. The flagship fund, Pure Alpha Fund, rose by 9.5%, while its rivals witnessed heavy losses.
Meditation is a way to Success
Ray Dalio is a strong believer in meditation. Dalio says that Transcendental Meditation is the single most important reason behind his success. He says that meditation allows him to think clearly and creatively. It helps him act calmly even if there is so much chaos. Since his college days, he has practice mediation which enabled him to manage stress and stay focused on his target.
Ray Dalio on Bitcoin
Of course, cash is still trash….currencies will go down in relation to goods and services….Personally, I’d rather have bitcoin than a bond….But let’s call it a digital gold. I think a digital gold, which would be a bitcoin kind of thing, is something that—probably in the interest of diversification of finding an alternative to gold—has a little spot relative to gold and then relative to other assets.
The above quote was Dalio’s answer when he was asked about cash during WEF 2022.
It was in 2021 that it became known that Ray Dalio had personally invested some small amounts in Bitcoin (small for him), albeit the exact quantity is still unknown. Even his hedge fund, Bridgewater Associates, has invested “a small slug of their fund directly into digital assets”.
How much allocation to Bitcoin does Ray Dalio recommend? In a podcast in May 2022 Dalio answered that an allocation of about 1-2% “seems about right” for the individual investor, but acknowledges that Bitcoin has its pros and cons and the stance is not “black and white”.
Despite being invested in Bitcoin himself, Dalio believes governments may use taxes and strong regulations on crypto if they become too popular and widespread. At the conference when he revealed that he owns “a few Bitcoins”, he also commented that the biggest threat to Bitcoin is its success.
Ray Dalio’s Net Worth
Being the world’s second-wealthiest hedge fund manager after George Soros, according to Forbes in January 2022, Ray Dalio’s net worth stood at $20 billion, making him currently the world’s 88th richest person. This is impressive considering his financial problems in the early 1980s.
In 2014, he earned $1.1 comprising a share of his firm’s management and performance fees, cash compensation, and stock and option awards. While in 2018, he received $2 billion in compensation for the year, after his fund posted a 14.6% return.
What is Ray Dalio’s hedge fund? What assets does it invest in?
As mentioned above, Ray Dalio’s hedge fund is named Bridgewater Associates.
Two years after his MBA, in 1975, he started Bridgewater from his two-bedroom apartment in New York City. Operations were initially as a wealth advisory firm, and Dalio advised the clients on currencies and interest rates. The company started publishing research reports about global market trends.
Bridgewater began to grow swiftly when McDonald’s became a client of his firm. Later, he managed to attract both the World Bank and Eastman Kodak as clients. He became a public person in 1987 when he managed to make a profit despite the substantial market crash.
Since then, clients include the $196 billion California Public Employees’ Retirement System, the $27 billion Pennsylvania State Employees’ Retirement Fund, Melbourne-based National Australia Bank Ltd., and the pension fund of Hardford and Connecticut-based United Technologies Corp.
In 1991, he launched Bridgewater’s flagship strategy, Pure Alpha. In 1996, Dalio launched an All-Weather fund for steady and low-risk growth which later came to be known as Risk Parity.
- In 2013, Bridgewater Associates became the largest hedge fund in the world.
- In Bloomberg’s 2020 ranking he became the 79th wealthiest person in the world.
How did Ray Dalio become so wealthy? Like all hedge funds, he charges both a management and performance fee. Because of the spectacular performance of the fund, the performance fees have been substantial. Additionally, Ray Dalio is also invested in his funds.
Between 1991 and 2005 his Bridgewater Associates lost money for only three calendar years, and the worst year was only a 4% loss.
Other famous traders and their trading strategies
- Top motivational trading quotes
- How Jim Simons’ trading strategies Made 66% A Year (The Medallion Fund)
- Ed Seykota – Trading Strategies and Quotes (Trend Follower Wizard)
- Jesse Livermore – The World’s Most Legendary Trader?
- Richard Dennis – The Turtle Trader (trend follower)
- William Eckhardt – The mathematical trader (An early Nassim Taleb)
- Stanley Druckenmiller – George Soros’ left hand
- Paul Tudor Jones – Maverick Trader (quotes and strategies)
- Micheal Steinhardt – To Make Money Is Should Be A Little Painful
- David Einhorn – investment strategy and philosophy
- Bill Ackman – investment strategy and philosophy
- Steve Cohen – Stock Market Wizard
- Mark Douglas – All About The Correct Mindset
- Steve Clark – hedge fund market wizard
- Larry Williams – Indicator Innovator, Trader, And Tax Rebellion
- Jim Rogers – The Adventurist Macro Trader
- Larry Hite – All About Risk
- Randy McKay – Market Wizard currency trader
- Michael Marcus – The First Market Wizard
- Charles Faulkner – trader and programmer
- Richard Driehaus – Turtle Trader
- Dana Galante – the Market Wizard short seller
- Linda Raschke – Reading The Music Of The Markets
- Nicolas Darvas – How I made $2,000,000 In The Stock Market
- David Shaw – the king of quant – trading strategies
- Van K. Tharp – The psychology of trading
- Larry Connors – Mean Reversion Trader
- Rob Hanna – Quantifiable Edges
- Ahmet Okumus – From Istanbul to Wall Street
- Steve Watson – Small cap investor
- Gil Blake – The master of consistency
- Blair Hull – All about the trading edge
- Howard Seidler – an original Turtle Trader (The Turtle Experiment)
- Steve Lescarbeau – mutual fund trader
- Tom Basso – Mr. Serenity
- Bruce Kovner – Trade Small And Manage Risk
- Michael Carr – Trader, Motivator, And Speaker
- Bill Lipschutz – FOREX trader
- Brett Steenbarger – All About Trading Psychology
- Joe Ritchie – an early quant in the option markets
- Micheal Masters – Stock Market Wizard
- Monroe Trout – one of the first Market Wizards
- Alexander Elder – Trading Author And Indicator Innovator
- Mark Ritchie – Master Option Trader (God In The Pits)
- Alphonse Fletcher Jr. – Triple Digit Returns
- Mark Minervini – stock market wizard trader
- Mark D. Cook – market wizard trader and investor (Net worth and strategy)
- Jeffrey Yass – the founder of Susquehanna
- Claudio Guazzoni – Multillingual trader
- Micheal Lauer – Stock Market Wizard?
Ray Dalio quotes
We end the article by giving you some of what we consider the best quotes from Ray Dalio, all taken from reading his books and interviews. Read and learn!
There are two main drivers of asset class returns – inflation and growth.
Look at what caused people to make a lot of money and you will see that usually it is in proportion to their production of what the society wanted.
If it didn’t happen in your life before, then you’re not paying attention you don’t think it’s possible. But almost all important events never happen in your life before.
I worry about another leg down in the economies causing social disruption because deleveragings can be very painful – it depends on how they’re managed.
It all comes down to interest rates. As an investor, all you’re doing is putting up a lump-sump payment for a future cash flow.
Over the long run, the price of gold approximates the total amount of money in circulation divided by the size of the gold stock. If the market price of gold moves a long way from this level, it may indicate a buying or selling opportunity.
In return, society rewards those who give it what it wants. That is why how much money people have earned is a rough measure of how much they gave society what it wanted.
School typically doesn’t prepare young people for real-life — unless their lives are spent following instructions and pleasing others. In my opinion, that’s why so many students who succeed in school fail in life.
It’s far more common for people to allow ego to stand in the way of learning.
Choose your habits well. Habit is probably the most powerful tool in your brain’s toolbox.
Truth – more precisely, an accurate understanding of reality, is the essential foundation for producing good outcomes.
To make money in the markets, you have to think independently and be humble.
If you can’t successfully do something, don’t think you can tell others how it should be done.
The most important thing is that you develop your own principles and ideally write them down, especially if you are working with others.
Above all else, I want you to think for yourself, to decide 1) What you want, 2) What is true and 3) What to do about it.
Success comes from knowing what you don’t know, more than coming from what you do know.
If you don’t look at yourself and think, ‘Wow how stupid I was a year ago,’ then you must not have learned much in the last year.
Pain + Reflection = Progress
If you are not aggressive, you are not going to make money, and if you are not defensive, you are not going to keep money.
In order to be successful, you’re betting against the consensus, and you have to be right.
If you don’t own gold, you know neither history nor economics.
It’s more important to do big things well than to do the small things perfectly.
Not being controlled by an emotion helps to see things at a higher level.
Mistakes are the path to progress.
The more you think you know, the more closed-minded you’ll be.
More than anything else, what differentiates people who live up to their potential from those who don’t is a willingness to look at themselves and others objectively.
Experience taught me how invaluable it is to reflect on and write down my decision-making criteria whenever I made a decision, so I got in the habit of doing that.
Don’t mistake possibilities for probabilities. Anything is possible. It’s the probabilities that matter. Everything must be weighed in terms of its likelihood and prioritized.
By and large, life will give you what you deserve.
The greatest tragedy of mankind, is people who have opinions that are wrong.
I believe that all organizations basically have two types of people: those who work to be part of a mission, and those who work for a paycheck.
I think that the first thing is you should have a strategic asset allocation mix that assumes that you don’t know what the future is going to hold.
As you can see both from the article and the quotes, Ray Dalio is a man of a lot of wisdom. Ray Dalio’s investment strategy might not suit you, but it has served him and his clients extremely well.