Ray Dalio Recommends 15% Gold Allocation

With gold at $4,000 and at all-time highs, the bullish argument for precious metals is only growing stronger. Amid the growing positive sentiment, a famous financier offers multiple reasons to add the yellow metal to your holdings.

Ray Dalio is the founder of Bridgewater Associates, one of the world’s largest hedge funds. In a recent interview, he reminded investors that even at new highs, gold is still absolutely worth owning.

At an economic forum, Dalio characterized gold as a “very excellent diversifier in the portfolio.” He added, “If you look at it just from a strategic asset allocation perspective, you would probably have something like 15% of your portfolio in gold.”

Why should today’s investors maintain a 15% portfolio position in gold? According to Dalio, gold is “one asset that does very well when the typical parts of the portfolio go down.”

Financial advisors typically say that about government bonds – or at least, they used to say it. Lately, the traditional mix of 60% stocks and 40% bonds hasn’t performed particularly well.

Courtesy: Geiger Capital

In recent years, folks who chose bonds as a “risk-free” investment lagged behind those who opted for gold. Moreover, gold has kept pace with stocks, as gold is up 112% over the past five years versus 98% for the NASDAQ.

Will government bonds and dollars gain value in the coming years? Dalio seems pessimistic about that, as he asks, “It’s very much like the early ’70s… Where do you put your money in?”

Dalio’s response is, “When you are holding money and you put it in a debt instrument, and when there’s such a supply of debt and debt instruments, it’s not an effective storehold of wealth.” Presumably, he’s referring to government debt notes such as Treasury bonds and U.S. dollars.

In contrast, Dalio appears to be optimistic about gold’s ability to maintain and grow its value over time. While financial advisors might consider gold for a low single-digit percentage of a portfolio, Dalio’s 15% gold recommendation stands out.

And when Dalio compares today’s economy to that of the 1970s, he’s certainly alluding to the dollar’s deterioration and gold’s massive bull market. Even though the gold price is higher now than it was during the 1970s, it still has plenty of overhead room on a percentage basis.

Courtesy: Bloomberg, Tracy Shuchart

Even though the media is only starting to report on this because gold’s on the rise, owning gold has been a smart idea for a very long time. As the data shows, gold has outperformed the S&P 500 and the MSCI World stocks index in this century so far.

Along with its strong growth trajectory, gold stands apart as a reliable safe-haven asset. Unlike government bonds and fiat money, gold bears no counterparty risk and can’t be printed up like governments do with paper or digital money.

As Dalio put it, “Gold is the only asset that somebody can hold and you don’t have to depend on somebody else to pay you money for.” The same thing might be said about silver, but the point is duly noted: gold appears to be much more “risk-free” than government debt instruments ever will be.