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KEY HIGHLIGHTS
- Diversification across asset classes is key
- We are currently living in a Stagflation type of environment
- In an inflationary environment, cash is the most risky investment.
- Portfolios should have gold as a significant but not dominant component.
Dalio, co-chief, founder
He says, for example, that gold can make up as much as 15% of a well diversified portfolio.
Ray Dalio claims that we are currently experiencing stagflation, which is high unemployment, stagnant economic growth and high inflation. A dead market for gold can have low returns, but it is generally high on returns.
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He suggests that in an inflationary climate, it is vital to not have dead assets. He stresses the importance of having a diverse portfolio to help you maintain higher returns and lower risk during stagflation. He suggests diversification not only across asset classes, but also across countries.
Dalio’s latest book Principles for Dealing with a Changing World Order outlines the paradigm shift that is taking place in 10 years. It will be difficult for central banks to maintain a balance of growth and inflation.
He argues that cash is the most risky investment in an inflationary climate because cash deposits offer a lower interest rate than inflation. Cash in an inflationary environment can result in lower purchasing power.