In recent days, the A-shares market has been hot, while the bond market has seen a significant decline. Should we switch from bond funds to stock funds? In the current low-interest-rate environment, how should we face the market's large fluctuations? When the market is good, should we diversify asset classes and regions? Economists are bearish on U.S. Treasuries and the U.S. dollar; does that also mean they are bearish on U.S. stocks? Ray Dalio, the founder of the world's largest hedge fund, Bridgewater Associates, recently took the opportunity of releasing a new book to systematically discuss his investment advice for Chinese friends. If you care about investment, wealth management, and financial security, you will surely gain a lot from this dialogue.
- Highlights of Dalio's Investment Philosophy
Diversification and Risk Balance: When certain markets rise, others may fall, reflecting different economic conditions. By achieving balance in these investments, one can reduce the cyclical volatility of the portfolio, thereby obtaining good returns while lowering risk. Holding 15 or fewer uncorrelated streams of income can reduce risk by 60% to 80% while maintaining the same returns.
Cash is a Poor Investment: In the long run, cash is a very poor investment. The challenge facing China is that investors often hold large amounts of money in real estate or cash deposits, which is not a good diversified portfolio.
Beware of Assets That Rely Heavily on Price Increases: The returns of any asset typically come from two parts: price changes and income. When an asset's returns primarily depend on price increases rather than interest, one should be cautious.
Regular Rebalancing: Investors need to regularly rebalance their portfolios. If there is no clear market view, a simple rebalancing strategy can be adopted: when the price of a certain asset class rises, timely reduce some positions and transfer funds to other asset classes to maintain long-term balance in the portfolio.
Abandon Market Predictions: It is always a good time for diversified investment; individuals and investors must be very cautious when trying to time the market. Do not attempt to predict market trends, as market timing is essentially a zero-sum game.
The Value of Gold: Gold is a non-productive asset, like cash, but it is an effective diversification asset. When currencies perform poorly, gold usually performs well. Gold is the second-largest reserve currency.
U.S. Dollar and Treasuries: Debt is money, and money is debt. When debt is excessive and grows too quickly, debt problems arise.
Bitcoin and Gold: Dalio holds a small amount of Bitcoin as a diversification tool; compared to gold, it is a diversified option. He finds gold more attractive because it is the only asset you can own that is not someone else's liability.
The Truth About Stablecoins: Stablecoins have significant advantages in trading, especially favored by those who are less concerned about interest rates and are willing to forgo interest for the convenience of trading. However, stablecoins are not a good wealth storage tool. Inflation-indexed bonds are an excellent tool for storing funds.
Family Financial Education: Everyone needs to recognize the importance of saving. Savings provide you with a foundation and security, and this security gives you freedom. Every birthday and Christmas, I give the children in my family a gold coin. I tell them they cannot sell this gold coin. They can only pass it on to the next generation on the day the monetary system collapses.
- Investment Strategies in a Low-Interest Environment: The Logic of the "All-Weather" Strategy
Asset Diversification: Bridgewater achieves portfolio balance through reasonable asset diversification. When certain markets rise, others may fall, reflecting different economic conditions. For example, when the stock market falls, the bond market may rise, and the gold market or inflation-hedging assets may also rise with currency depreciation.
Uncorrelated Income Streams: Holding 15 or fewer uncorrelated income streams can effectively diversify risk. For instance, in a slow deflationary environment, stocks may perform poorly, but bond yields may improve. If there is a significant amount of money printing in the economy, inflation-hedging assets (like gold) usually perform well.
Tactical Adjustments: Make tactical adjustments based on current market conditions to achieve this balance.
- The Dilemma of Bond Investment: Returns Mainly from Price Increases Rather Than Interest
Beware of Warning Signals: When the prices of certain low-yield assets are pushed up and become very expensive, investors' returns mainly come from asset price increases rather than interest. This low yield is actually an important warning signal indicating that greater risks may arise in the future.
Dynamic Rebalancing: Investors need to regularly rebalance their portfolios. When the price of a certain asset rises, timely reduce some positions and transfer funds to other asset classes to maintain long-term balance in the portfolio.
- Regional Diversification and Timing Traps: Abandon Market Predictions
Diversified Investment: It is always a good time for diversified investment. Individuals and investors must be very cautious when trying to time the market. They should first assume they cannot accurately predict market trends and then ask themselves what kind of portfolio they should have if they have no opinion on the market.
"All-Weather" Portfolio: It is recommended to keep half of the funds locally, but in a diversified portfolio, adopt an "all-weather" approach, including gold, bonds, and investments spread across about 10 different markets.
- Bitcoin and Gold: Dalio's Investment Views
Bitcoin as an Alternative: Dalio holds a small amount of Bitcoin as a diversification tool; compared to gold, it is a diversified option.
The Appeal of Gold: Gold is the only asset you can own that is not someone else's liability. Gold has intrinsic value and can be held without these risks. This is especially important in politically or geopolitically challenging environments.
- The Truth About Stablecoins: Are They Suitable for Holding?
Trading Advantages: Stablecoins have significant advantages in trading, especially favored by those who are less concerned about interest rates and are willing to forgo interest for the convenience of trading.
Not a Wealth Storage Tool: Stablecoins do not fulfill their primary function as a currency with limited supply and stability related to other currencies. In contrast, inflation-indexed bonds are a better asset choice.
- The Underlying Logic of Family Wealth: Saving and Gold Coin Inheritance
The Importance of Saving: Everyone needs to recognize the importance of saving. Savings provide you with a foundation and security, and this security gives you freedom.
Gold Coin Inheritance: Dalio gives the children in his family a gold coin every birthday and Christmas, telling them they cannot sell it, only pass it on to the next generation on the day the monetary system collapses.
- The Importance of Rebalancing: Overcoming Emotional Investing
Discipline: The core of rebalancing is to set a strategic asset allocation target to achieve portfolio balance. This not only allows you to sell at a profit at high points but also to buy at low points, thus maintaining investment discipline.
Systematization: Dalio organizes decision-making rules into a set of "principles" and converts them into computer programs, executing investment plans in a systematic way to avoid emotional interference.
Conclusion:
Ray Dalio's 10 financial rules for Chinese friends not only cover insights into macroeconomics but also delve into personal and family wealth management. He emphasizes the importance of diversified investment, risk balance, being cautious of assets that primarily rely on price increases, regular rebalancing, and abandoning market predictions. By giving gold coins to his grandchildren instead of toys, he conveys the deep wisdom of saving and wealth inheritance. In the current complex and changing financial environment, Dalio's advice undoubtedly provides valuable references for Chinese investors.
Related Reading: U.S. Secretary of Commerce Howard Lutnick: Economic data will be released on the blockchain.
Original Article: “Bridgewater Dalio: 10 Financial Rules for Chinese Friends”
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