Ray Dalio: Gold Reduces Risks, Enhances Returns, Belongs in Your Savings
The comments below are an edited and abridged synopsis of an article by Peter Reagan
In Principles for Dealing With The Changing World Order (Why Nations Succeed and Fail), Bridgewater Associates founder Ray Dalio looks at 500 years of economic history to give investors an idea of the cycle we are now in. The last such cycle occurred between 1930-1945 and caused a shift in global influence, as it is doing now.
Dalio makes a compelling case. He was interviewed by The Economic Times about the book, and he detailed the three hallmarks of the end of a global reserve currency regime: Governments run out of money; conflict between left-wing and right-wing populists; and the rise of new economic superpowers.
Dalio believes that the US is experiencing a relative decline on the global stage, with countries like China waiting in the wings to steal the spotlight.
These power struggles have historically been solved through conflict of one kind or another, and Dalio believes the US is facing 5 different wars right now: A trade war, a technology war, a geopolitical war, a capital war and a military war.
Dalio sees a stagflationary period ahead, considering both historical precedent and the present reality. For the ordinary investor, options are scarce. During periods of stagflation, physical gold and other commodities break out while most other asset classes (especially risk-on investments) underperform. Much of Dalio’s practical advice reiterates the importance of savings diversification, emphasizing that a lack of correlation between assets should be paramount.
Dalio has long recommended diversifying with gold. In 2019 he told the International Business Times: “I believe that it would be both risk-reducing and return-enhancing to consider adding gold to one’s portfolio.”
If we had followed Dalio’s advice and bought gold on July 17, 2019, we would be up 30% on that investment today. He is the founder of the world’s largest and arguably most successful hedge fund. Maybe his words are worth heeding.