Background
Ray Dalio founded Bridgewater Associates, the world's largest hedge fund with ~$160 billion AUM. He developed the 'All-Weather' portfolio concept and the risk parity approach — the idea that a portfolio should be balanced by risk contribution rather than dollar allocation. His Pure Alpha fund averaged 12%+ annually over 30 years.
Core Methodology
Dalio's approach combines macro economic analysis (his 'Economic Machine' framework) with systematic risk parity portfolio construction. The core insight: different asset classes perform best in different economic environments (growth rising/falling × inflation rising/falling), so a truly balanced portfolio should have assets allocated to perform in each quadrant.
Key Trading Rules
- Divide the economic environment into 4 quadrants: rising growth, falling growth, rising inflation, falling inflation
- Allocate risk equally across all 4 environments — not dollar-weighted, risk-weighted
- All-Weather allocation: ~30% stocks, ~40% long-term bonds, ~15% intermediate bonds, ~7.5% commodities, ~7.5% gold
- Rebalance when allocations drift significantly from targets
- Use leverage to equalize the risk contribution of lower-volatility assets (bonds) with higher-volatility assets (stocks)
- Diversification across uncorrelated return streams is the 'Holy Grail' of investing
Key Concepts
Books & Resources
Principles by Ray Dalio. The Economic Machine (30-minute YouTube video). Big Debt Crises by Ray Dalio. Bridgewater's research papers (free on their website).