How to Invest like a Hedge Fund Manager

Motivational speaker Tony Robbins interviewed self-made billionaire Ray Dalio. Ray heads the largest hedge fund in the world, Bridgewater Associates, which has over $150 billion in assets under management.

The All Weather Portfolio

According to Ray, “there is one thing we can see with absolute certainty: every investment has an ideal environment in which it flourishes. In other words, there’s a season for everything.” The four seasons he refers to are the following.

  1. Inflation
  2. Deflation
  3. Rising economic growth
  4. Declining economic growth

He suggests that these 4 economic environments will ultimately affect whether an asset’s price will increase or decrease. So for example, bonds should outperform in a deflationary period. Ray elaborates by saying we should have 25% of our risk spread out evenly across all 4 economic seasons.

This is why he calls this investment approach “All Weather.” There are 4 seasons in the financial world and nobody knows for sure which one is coming next. So the idea is to maintain a balanced portfolio that will not only make us money, but also help protect us against any surprises in the markets.

Here are some assets we can allocate to each of the four categories, and keep in mind it’s possible for two of these conditions to overlap.


This is a brilliant strategy. I’ve always had a bullish bias towards investing. In other words, my investment decisions are based on the idea that financial markets tend to increase with economic growth over the very long run, so I don’t try to short anything. But Ray’s approach suggests that it’s possible to make money even in environments of economic decline and deflation that doesn’t involve timing the markets. Very interesting perspective.

Asset Allocation

Using the philosophy behind his All Weather portfolio, Ray has developed the following asset allocation for the average investor which should work with his strategy.

  • 30% stocks via low fee index funds such as the ones that track the S&P 500 index.
  • 15% intermediate-term government bonds
  • 40% long-term government bonds
  • 7.5% gold
  • 7.5% commodities

And the results speak for themselves. 🙂 This all weather portfolio has performed quite well from 1984 to 2013. During that period, the portfolio earned a positive return 26 out of 30 years.

The average annual return was 9.7%. According to Tony Robbins, this portfolio never lost more than 3.95% in any given year over the past 75 years. Gold and commodities are known for being highly volatile in price, but it appears having a 15% allocation in this case might actually reduce portfolio volatility.

Over the last 20 years, Bridgwater had annualized returns of 14.7%. To put that into perspective, the S&P 500 index returned about 8.7%. During the financial crisis Bridgewater even managed to earn a positive, albeit modest return in 2008 when the general stock market was down. So when Ray Dalio speaks about investing, I’m inclined to listen. 😀 It doesn’t matter how poor people are, anyone can at least afford to pay attention.😄

The only thing I’d change about the all weather portfolio is to buy investment grade corporate bonds instead of government bonds because the yields on T-Bills and other government debt are abysmal right now. For me, the key point is to maintain a balanced asset allocation, and rebalance it once a year.


Random Useless Fact:

Both men and women surveyed found that bearded men seem to be more respected, powerful, and of a higher social status than clean-shaven men.



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11/03/2016 6:52 pm

I’m very heavy into the Inflation/Increasing quadrant. Investment properties are my jam!…That’s a phrase the cool kids are using still right?

11/04/2016 7:01 am
Reply to  Stephen

But what is your cap rate on the property? For most investors its like 2 or 3% which is low.

11/05/2016 4:55 pm
Reply to  MGCad

Just shy of 6%

11/05/2016 2:55 am

Good reading. I will check out the book although I am sticking to 100% stocks strategy as I have another 20- 30 years of investing horizon.