(#Inflation #raydalio)
Ray Dalio… He is one of the most respected voices in the finance community and considered a thought leader by many when it comes to the economy and investing. He is the founder and co-chief investment officer of Bridgewater, the world’s largest hedge fund. That’s why it raised a huge red flag for me when I heard what he had to say about upcoming inflation in one of his most recent interviews. In this video, we are going to hear why Ray Dalio thinks massive inflation is ahead for the economy and what he is doing with his own investment portfolio to not only protect against the effects of inflation but actually benefit from this economic environment.

Listen to this clip of Ray Dalio speaking at the Wall Street Journal “Future of Everything” conference and then afterwards we can break down his economic predictions and most importantly, how we can properly position our own portfolios.

This is not the first time Ray Dalio has come out and warned about inflation. He has been warning about higher inflation for months now in nearly every interview he has given to the media.

I’m excited to tell you about what exactly Dalio is doing in his investment portfolio to prepare for inflation. But before we go any further, there are two questions that we need to address to help put Ray Dalio’s comments into context: 1) What is inflation and 2) why is it considered by many to be bad? Let’s start with the first question. I think it is important to take a minute and define what inflation truly is. It is a term that has been getting thrown around a lot lately and it is a term that many people likely don’t understand.

To put it in simple terms, inflation is the sustained upward movement in the overall price level of goods and services in the economy. It has the effect of devaluing a particular currency. When a unit of currency depreciates in value, so does purchasing power, as it takes more currency units to buy the same amount of goods and services than it did in the past. In other words, your money buys you less stuff, be it groceries, rent, or medical services.

Inflation affects individuals and the economy. When inflation rises faster than wages increase, it causes a decrease in purchasing power that forces individuals to fork over more dollars, euros, or other forms of currency to buy necessities ranging from food and clothing to medical services, which can put the average consumer in a bad place financially and reduce discretionary spending. This can be especially bad for the elderly and retired, many of whom live on a fixed income. That means the money they receive every week from their pension or social security remains the same while the cost of everything (i.e., groceries, transportation, utilities) continues to increase, making it more difficult to pay for basic necessities. Inflation can also hurt savers, as inflation diminishes the value of the interest you earn on your deposits. Periods of time with very high inflation, also called hyper-inflationary environments, can have impacts beyond the economy and investing. Just look to the 1970s in the United States as an example. Many historians and economists credit the social and political impact of double digit percentage inflation during the decade leading to the landslide election win of Ronald Reagan in 1980. Reagan won 489 electoral votes compared to Jimmy Carter’s 49.

Now that we have context around Dalio’s comments, let’s examine his portfolio to get a better sense of what he is doing to prepare for what’s ahead. Ray Dailo strongly believes inflation is coming and he is putting his money where his mouth is by building an investment portfolio that will likely be much more resistant to the impacts of inflation than a standard portfolio of 60% stocks and 40% bonds. Let’s take a look at some of the individual positions Dalio has within his portfolio. The two largest positions in Dalio’s portfolio are ETFs but if we look past those to his individual stock holdings, it is clear that Dalio has constructed his portfolio in a way to protect against the impact of inflation.

First up is gold: Gold is the third largest position in his portfolio. And at nearly 5% of his total portfolio, Dalio has more exposure to Gold than any individual company. Anyone who has been a Dalio follower for a while will not be surprised by this investment. Dalio likes gold. One of his famous quotes is “If you don’t own Gold, you know neither history nor economics.” This investment is a textbook and traditional hedge against inflation and economic uncertainty. The logic behind the investment is clear. To put it simply, as inflation raises prices in the economy, it will also increase the value of gold, thus producing a positive investment return.

In addition to ETFs and Gold, Dalio owns a collection of individual stocks. Three of his largest positions really stand out to me that prove he is positioning his portfolio for inflation….(read more)

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