Ray Dalio: How Investors Can Cut Their Risk In Half

In his recent interview with Tony Robbins, Ray Dalio explained how investors can cut their risk in half. Here’s an excerpt from the interview:

If you have uncorrelated assets, and you easily can because when the economic policies, when economic conditions shift it shifts returns from one type of asset to another kind of asset.

So when you have uncorrelated or low correlated assets you can dramatically reduce your risk without reducing your return. So I mean just to give that as an example, the holy grail of investing, and you don’t have to do it, it could be five, it could be ten, it could be fifteen, but you will cut your risk in half.

Or if you get down to 10 or 15 you will cut it by 80% without reducing your returns, and so it’s more important to know how to diversify well than it is even know how to pick the best things, and one of the problems of the world is that everybody wants up, they want up in the stock market, they want up in the real estate market, they want up in the economy.

And that has, and central banks can produce up okay by giving it the shot of money and credit. They can always produce that up but that up over a period of time has a consequence, and that consequence is that there’s a lot of debt, and that has to be paid back, that will be paid back in depreciated money.

So you don’t want to be in that position of like, if your portfolio is going down a lot that’s not good, to give you an idea, if you lose half your money it takes a hundred percent return to get back. You lose fifty percent, you need a hundred percent to get back.

There are people who are in some of these tech funds and they’re down 70 percent, this can’t be part of the game plan okay, that’s not part of the game plan.

So the issue of being able to reduce risk through diversification which doesn’t reduce return, and in my view never put yourself in a position that you could lose more than 25 percent in like your worst case situation. 25% in a game plan, that can be acceptable, but if you go into that and if you look at any single asset in buying power there’s no single asset in buying power that hasn’t lost 75 or 80 percent, so you need diversification.

You can watch the entire discussion here: