Make sure you’re well-diversified outside of cash and across many countries, Ray Dalio said as the inflation hit a 40-year high.
As an investor, Ray Dalio eyes the rearview mirror to see what’s ahead. If this paradox makes sense, then you likely agree with the view of history that those who cannot remember the past are condemned to repeat it.
MarketWatch: Your new book is the latest in a series where you share your fundamental principles for investing in and living with the world as it is — essentially ways to accept and play the hand you’re dealt. What conditions and circumstances concern the United States right now that you want investors to understand, and why look to the past for answers?
MarketWatch: The political and social divisions in the U.S. affect so much of what Americans take for granted, and maybe it’s because they’re taken for granted that they confront us now. Can this country move forward together? There is a great polarity, a fight-and-win-at-all-costs mentality. Looking ahead, in the 2022 elections we will see the primary battle between the extremists and the moderates in both political parties and probably see moves to greater extremism. In the general election, there is a good chance that neither side will accept being the loser.
Dalio: I know. In these cases — the French Revolution, the Russian Revolution, the Chinese Revolution, for example — the divides became greater and greater. And then you have to pick a side and fight for that side. We are starting to see this in the U.S. by the movement of Americans to different states. It’s not just a tax issue. It’s a values issue.
“‘People think the safest investment is cash, but they don’t look at the inflation-adjusted return.’” Don’t hold cash. It’s better to hold a liquid, diversified portfolio of assets — if it’s balanced. Make sure you’re well-diversified outside of cash — stocks SPX, -0.87%, bonds TMUBMUSD10Y, 1.426%, inflation-indexed bonds, commodities and gold GLD, +1.21%, and across many countries, particularly those with stronger income statements and balance sheets. An “all-weather” portfolio has currency diversification, asset-class diversification, country diversification and industry diversification.