Ray Dalio: The 4 Quadrant Portfolio For All Environments

Johnny HopkinsRay DalioLeave a Comment

During his recent interview with Chris Williamson, Ray Dalio discussed his four quadrant portfolio for all environments. Here’s an excerpt from the interview:

Dalio: There are basically two big influences on markets. The growth rate and the inflation rate.

Like if you know that growth is going to be faster than expected and inflation is going to be higher than expected you know that bonds are going to go down, and vice versa.

So the way I look at it is there are those two big influences and then they can… so I have four environments and each one of them can go up or down.

So there are four quadrants that I think of:

  • Rising growth
  • Falling growth
  • Rising inflation
  • Falling inflation

And I want to have a portfolio that will be 25 percent of my risk in each one of those so that I don’t have any bias. And so I pick the assets that are going to do well in each of those four quadrants, and I hold them in a balanced way.

And I’ve tested that going back actually to 1900 and so on and you’ll maintain, you’ll actually increase your buying power.

So that’s the kind of thing that I think in the beginning, then you have to also make provision for taxes to some extent. So I say whatever that amount of money is I want twice as that so in case it goes in half.

And I want to build a portfolio that looks like that for X number of years that I have that, and that’s the safe savings. And then when I go beyond that then I’ll take more risk.

But I think that being safe particularly in this kind of an environment is important and I would take a perspective of how to do that’s like the one I’m just describing.

You can watch the entire discussion here:

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