Ray Dalio advises investors to include gold in their portfolio as risk-on assets head towards diminishing returns.
As global geopolitical tensions rise and gold’s price continues to soar, the founder and manager of the world’s largest hedge fund spoke about what he sees as the most prudent path for investors moving forward. According to an article on IBTimes, Ray Dalio’s Bridgewater Associates, which manages roughly $150 billion in assets, was last year’s best-performing hedge fund and maintains a heavy exposure to the gold sector.
Dalio himself is a long-standing advocate of gold, as the billionaire has continuously advised investors to include gold in their portfolio even during times of peace and economic prosperity. Now, IBTimes reports that Dalio sees the risk-oriented investment strategies of the past few years taking a back seat as global central banks turn to dovishness and nations become embroiled in trade and currency disputes.
According to Dalio, there is little question that stocks and other risk-on assets are headed towards an era of diminishing returns. Yet due to the economic environment over the previous decade, Dalio thinks that most traders and investors remain blindsided when it comes to the changes taking place.
Since the financial crisis in 2008, central banks around the globe kept interest rates low while applying massive amounts of quantitative easing to boost their economies. This ushered in an era where risk investment became the norm, as loose monetary policies boosted investors’ confidence when seeking returns.
However, IBTimes reports these central bank strategies came with severe consequences in the form of massive corporate and government debt. While often mentioned as a major point of concern, the U.S.’ own national debt of over $22 trillion is overshadowed by a combined $246.5 trillion of global debt by the end of the first quarter. Besides threatening to plunge the global economy into a recession, this issue also stretches the creditors’ faith.
The Fed’s attempts to normalize policy culminated in a sudden shift from monetary tightening to easing, with markets now expecting interest rate cuts after having priced in rate hikes just months ago. Dalio views this as the start of a paradigm shift that investors will need to be wary of, as the return towards loose monetary policies will further inflate global debt and depreciate currencies.
According to IBTimes, the latter point has become especially prominent as Washington and Beijing bicker over currency devaluation, with President Trump recently reiterating that the U.S. should weaken the greenback to offset China’s own currency manipulation. While the fear and uncertainty will move strategists towards haven assets, central banks’ steady trickle towards negative interest rates will drive investors to shun bonds and look elsewhere to generate returns.
As always, Dalio believes that gold will be the asset to turn to as Wall Street’s bull run comes to a close, tensions escalate and bonds and currencies start giving off shaky looks. The money manager noted that most investors are currently underweight in gold, and that increasing their exposure to the metal would not only reduce risk but also position them towards better returns as the global economic stage changes.