This is possibly the one book that has influenced me the most in my short time on this planet. Principles: Life and Work is by legendary investor and Billionaire Hedge fund manager Ray Dalio. In most circles that I ran in, he was a virtual unknown, until he decided enough was enough. He had made enough money for himself, his family and his clients. He decided it was time to build an even bigger legacy than he had already built.
I first found out about Ray when I read the book, Money: Master the Game by Tony Robbins. In his book, Tony is on a mission to find out answers to some of the toughest challenges plaguing investors today and maybe for generations to come. What would he find out on this journey?
Well, one thing he did not expect to be handed were the keys to one of the most sought after wealth blueprints that this world has ever seen. That is to say, in the book he interviews Ray Dalio, of Bridgewater Associates and asks him some very tough questions, looking for answers that could serve the average investor like you and me.
Like you might expect, Ray was pretty tight laced about his secret sauce for investing. You don't become a Billionaire Hedge Fund manager by accident. He admitted that he and his team had developed algorithms and strategies to find undervalued investments that they could purchase at a large discount and that would eventually appreciate and make them and their investors very wealthy and very happy. They use high level proprietary software and cutting edge Machine Learning and Artificial Intelligence combined with some of the brightest minds and some of the most progressive leadership and team management practices ever employed. All of this leads to a collective intelligence that produces a bunch of small bets that produce asymmetric returns.
This is all great. I have to admit I was a bit disappointed when I heard this though since there is literally no way myself or my clients could ever replicate what he and Bridgewater Associates were doing.
But that is when, in the book, Tony pressed him further. He asked Ray if he had a strategy for the everyday investor, one that could stand the test of time. Ray was not immediately forthright.
Tony did not relent. He begged Ray. He said I mean come on, I know you have a nonprofit and you know you will not be around forever. What is the investment strategy for this nonprofit once you are gone?
Finally Ray relented. He shared his "All-Weather" portfolio, which is as follows. I was super excited. This was on piece of the puzzle I had always been looking for.
Here is his portfolio:
40% long-term bonds
15% intermediate-term bonds
He says they have backtested this portfolio against the market and it performs as good or better than the market in economic booms and it looses less in economic recessions.
The most noticeable thing that I saw about his "All-weather" portfolio is how heavily stacked with bonds it is. This is very important to note as he believes like I do that most average investors are overly exposed to market related risks.
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