Ray Dalio, the founder and CEO of Bridgewater, the world’s largest hedge fund company by assets under management, sees gold as a key asset as central banks get more hawkish with policies that devalue currencies and are likely to cause a “paradigm shift” in investing.
The Bridgewater CEO believes that investors have been driven into stocks and other assets that have equity-like returns. As a result, too many people are allocated into these types of securities and are therefore likely to face diminishing returns.
“I think investors today are mostly leveraged long, meaning they own risky assets and have substantially leveraged those assets through company buybacks, private equity, and so on. In order to diversify against this—i.e. reduce exposure to leveraged long portfolios—investors should look to other stores of wealth and areas that have intrinsic diversification,” the Bridgewater Associates leader said.
“Additionally, for reasons I will explain in the near future, most investors are underweighted in such assets, meaning that if they just wanted to have a better balanced portfolio to reduce risk, they would have more of this sort of asset. For this reason, I believe that it would be both risk-reducing and return-enhancing to consider adding gold to one’s portfolio. I will soon send out an explanation of why I believe that gold is an effective portfolio diversifier.”
This was great news for gold bugs, as the price of gold jumped higher during Dalio’s publishing of the post, most recently up 0.7% around $1,421 an ounce. Dalio is extremely well-respected in the investment community, but does not believe that cash is the place to be at this moment, even with pending global economic uncertainty.
“People seem to think that going to cash reduces risk. But that’s only the case from a standard deviation perspective. When interest rates are negligible—below the inflation rate/nominal GDP growth—and you pay taxes on that, you’re not getting any return. Cash over the long run is the worst performing asset class and therefore the riskiest asset class.”
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